The Financial Supervisory Service issued a consumer alert on single-stock leveraged exchange-traded funds (ETFs), where investor demand has recently surged. The move comes on the judgment that individual investors face growing loss risks due to sharp price swings and widening premiums and discounts.
According to the Financial Supervisory Service on the 18th, the market capitalization of single-stock leveraged ETFs more than doubled from 4.5 trillion won to 9.6 trillion won in the 12 trading days after listing (May 27–June 12). Over the same period, individual investors were net buyers of 8.2 trillion won, accounting for 92.7% of total net purchases. In contrast, foreigners' net purchases were around 200 billion won.
The average daily turnover of single-stock leveraged ETFs was tallied at 122.5%. This far exceeds the turnover of spot shares of Samsung Electronics and SK hynix (1%), as well as the average for domestic stock-type leveraged and inverse ETFs (30.2%). Turnover is an indicator of how actively a particular investment product was traded in a single day.
The Financial Supervisory Service also emphasized that, by design, losses on single-stock leveraged ETFs can be greatly amplified. Considering the domestic stock market's daily price limit of ±30%, losses of up to 60% can occur in a single day, it said.
In fact, from May 27 to June 12, during a continuous decline, the maximum drawdown of the Samsung Electronics single-stock leveraged ETF reached 35.9%, about twice the maximum drawdown of its underlying asset, Samsung Electronics shares (18.0%). Over the same period, the SK hynix single-stock leveraged ETF's maximum drawdown also reached 38.0%, far exceeding the underlying asset's drawdown (19.1%).
The Financial Supervisory Service said it will continue to monitor investment trends in single-stock leveraged ETFs and noted it would take responsive measures, such as issuing additional consumer alerts, if concerns over financial consumer harm grow.