"Even if Samsung Electronics Reaches 300,000 Won, the Leveraged ETF Won't Return to Its Original Price" ETF Designer Posts 'Stop Investing' Message, Then Deletes It

[Financial News] An unusual incident occurred after the head of an asset management firm that runs a single-stock leveraged ETF publicly urged investors to avoid the product and then deleted the post. Bae Jae-kyu, CEO of Korea Investment Management and widely known as the "father of ETFs" in South Korea, appealed, "I hope you stop investing, even now."

In a Facebook post on the 20th, Bae directly warned investors as the head of the asset manager. "I am sorry to say this as the CEO of a firm that manages single-stock leveraged ETFs," he wrote. "The bottom line is that you should not invest in single-stock leveraged and inverse 2x ETFs."
Bae said ETF prices may not recover to the same level even if the underlying asset price rebounds. "Even if the stock returns to its original level over time, the ETF price is highly unlikely to return to where it started," he explained. "That is especially true when the stock's volatility is as high as it is now, because losses accumulate every day." He added, "No one expected volatility to rise this much."
In the analysis data Bae released, he compared the decline in SK hynix shares with the losses in a single-stock leveraged product. From May 27 to the 16th of this month, SK hynix shares fell 17.9%, from 2,243,000 won to 1,842,000 won. Over the same period, the SK hynix single-stock leveraged product dropped 47.5%. If the underlying asset's decline is simply doubled, the theoretical loss would be 35.8%, but the actual loss was 11.7 percentage points worse.
Losses also occurred in the inverse ETF. Based on the decline in SK hynix shares, the SK hynix single-stock inverse ETF should theoretically have gained 35.8%, but in reality it posted a 31.1% loss. Analysts say the effect of "negative compounding" came into play as the ETF's principal itself shrank during sharp swings in the stock price.

The single-stock leveraged ETFs managed by Korea Investment Management include the "ACE Samsung Electronics Single-Stock Leveraged ETF" and the "ACE SK hynix Single-Stock Leveraged ETF."
It is rare for the head of an asset management firm that issues and manages such products to publicly ask investors to hold back.
Meanwhile, Bae deleted the post later that same day. Among investors, the move drew considerable attention because the CEO of an asset manager had publicly discouraged purchases of his own firm's product.
Bae is the figure who led the listing of Korea's first ETF, the Samsung KODEX 200 ETF, in 2002 while he was at Samsung Asset Management.
[email protected] Han Seung-gon Reporter