The impact of the "negative compounding effect" is becoming evident for investors. Recently, as volatility in the domestic stock market has increased, the losses from single-stock leveraged exchange-traded funds (ETFs), which track individual stocks at double the rate, have been significantly greater than the underlying assets. Although the decline in stock prices has not been substantial, the structure of these funds, which follows daily returns at double the rate, has led to this phenomenon.
According to the financial investment industry on June 11, Samsung Electronics' stock price fell 2.6% from May 27 to June 11 over the last 11 trading days. During the same period, the single-stock leveraged ETF tracking Samsung Electronics' stock price dropped 10.5%, resulting in a loss rate more than four times that of the underlying asset.
SK Hynix exhibited a similar trend. Its stock price declined by 6.3% during the same period, while the single-stock leveraged ETF for SK Hynix plummeted by 17.2%.
This situation arises from the structural characteristics of leveraged ETFs. These funds do not track the cumulative return of a specific stock at double the rate but rather follow "twice the daily return." Therefore, in a volatile market where stock prices fluctuate up and down, the investment performance can diverge significantly from a simple doubling of the underlying asset's return.
For instance, if a stock price drops by 10% one day and rises by 10% the next, the original stock price remains around 99, reflecting a loss of about 1%. In contrast, a leveraged product that tracks double the daily return would experience a 20% drop on the first day and a 20% rise the next day, resulting in a final return of -4%. The greater the volatility, the more pronounced the negative compounding effect becomes.
This phenomenon is particularly evident in recent market conditions, where the stock market has lost direction and experienced sharp fluctuations. Investors who only consider the decline in the underlying asset may face larger-than-expected losses when predicting the losses of leveraged products. The Financial Supervisory Service announced that it would take strict action against irresponsible sales practices by securities firms that promote or recommend high-risk and concentrated investments.
However, in a rising market, the compounding effect can significantly boost returns. In fact, the recent one-year return of the TIGER 200 IT Leveraged ETF, which includes major domestic information technology stocks like Samsung Electronics and SK Hynix, has reached 2500%. This means that an investment of 100 million won would have grown to approximately 2.6 billion won.
Meanwhile, the market maintains a positive long-term outlook for Samsung Electronics and SK Hynix. Jeong Young-dae, a researcher at Sturning Value, stated, "Samsung Electronics is a key beneficiary of the increased demand for HBM due to the expansion of AI investments by Nvidia and global big tech companies," adding that the company has entered a structural growth phase supported by the expansion of long-term supply contracts.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.