Bae Jae-kyu, CEO of Korea Investment Trust Management, stated in an interview on the 21st that AI is a 20-30 year megatrend. Known as the 'father of ETFs,' he told Asia Economy that investors should focus on long-term direction rather than daily market fluctuations. Bae introduced Korea's first ETF in 2002 while at Samsung Asset Management, building the foundation for Korea's ETF market which has grown to hundreds of trillions of won. He warned against short-term speculation and emphasized the importance of compound growth through patient, long-term investment in AI infrastructure.
Bae Jae-kyu Identifies AI as 20-30 Year Megatrend
Bae stated: "The artificial intelligence theme currently leading the market is a megatrend that will last 20-30 years. Rather than being swayed by today and tomorrow's ups and downs, you must believe in the grand direction and invest time." He compared AI to historical technological revolutions including steam engines (railroads), electricity (manufacturing), and the internet (platforms), noting that "historically, when new technology emerges, companies utilizing that technology have led the wealth of the new era." He described AI as "a technology that has been prepared for over 10 years since the internet revolution now exploding, and it will continue for another 20-30 years."
He identified three core AI infrastructure categories: data centers, power, and semiconductors. Bae advised: "When new technology emerges, you must pay attention to the infrastructure supporting it and the big tech companies making money by utilizing that technology."
Four Semiconductor Value Chains Recommended for Global Investment
Bae dismissed concerns about semiconductor 'peak-out' (post-peak decline). He explained: "In the past, once railroads were laid down, they lasted 100 or 200 years, so once infrastructure construction ended, the steel industry had less to do. But semiconductors are completely different." He continued: "Semiconductors wear out after being used for more than 3 years, so they must continuously be replaced with better performing products. Because of this, the semiconductor infrastructure ecosystem cannot end as a one-time event and must continue explosive growth."
He recommended long-term global investment in four core semiconductor value chains: memory (Samsung Electronics, SK Hynix), design (NVIDIA), foundry (TSMC), and equipment (ASML).
Leveraged ETFs Amplify Market Volatility Through Daily Rebalancing
Bae emphasized the risks of single-stock leveraged ETFs, explaining that investors must understand the principle of principal erosion as underlying asset prices fluctuate. He stated: "If the underlying asset price rises 25% then falls 20%, it returns to the starting point, but a 2x leveraged product rises 50% then falls 40%, so principal of 100 becomes 90." He added: "Even if the main stock returns to its original position, if volatility is severe, the investor's assets inevitably 'melt away.'"
Bae explained the structural mechanism by which leveraged ETFs amplify overall market volatility using specific numerical examples. To maintain daily 2x returns, asset managers must adjust positions daily just before market close (2:30 PM to 3:30 PM). He stated: "For a leveraged ETF with 10 trillion won in assets under management (AUM), to maintain 2x exposure you must hold a total position of 20 trillion won—10 trillion won in stocks and 10 trillion won in futures." He continued: "Here, if the market rises 10%, total assets become 22 trillion won and net assets increase to 12 trillion won. To match the 2x ratio tomorrow, you need a total position of 24 trillion won, so you must buy an additional 2 trillion won of futures in the market."
The opposite occurs when the market falls 10%. Total assets shrink to 18 trillion won and net assets to 8 trillion won, requiring a 16 trillion won position for the next day, meaning 2 trillion won must be additionally sold in the market. Bae explained: "Because you must buy more when it rises and sell more when it falls, market volatility increases."
Long-Term Compound Growth Strategy Demonstrated with Numerical Example
Bae repeatedly advised individual investors to invest in 'direction' and 'time.' Once a clear future growth direction (AI) is identified, one must trust the power of time—the 'compound effect'—and wait.
He stated: "I tell friends when their grandchildren are born, think of it as securing their retirement and buy 10 million won worth of NASDAQ 100." He continued: "Assuming an annual average of 15%, if they retire after 55 years, it becomes 2,180 times. 10 million won becomes 21.8 billion won. If you assume retirement after 60 years, it becomes 4,300 times. It's a 5-year difference, but a 2,000-times difference." He added: "Those 5 years wasted buying and selling later appear as a 2,000-times profit gap, so you shouldn't waste time or money going into leverage."
He concluded by advising investors: "When volatility is high, don't get too close to market fluctuations—stay somewhat distant. If you want to invest long-term, it's better not to look at the market closely."
FAQ
What did Bae Jae-kyu say about AI investment duration on the 21st?
Bae Jae-kyu stated in an interview on the 21st that AI is a megatrend that will last 20-30 years. He compared it to historical technological revolutions like steam engines, electricity, and the internet, advising investors to believe in the grand direction rather than being swayed by daily market fluctuations.
How do leveraged ETFs amplify market volatility according to Bae Jae-kyu?
Bae explained that leveraged ETFs must rebalance daily between 2:30 PM and 3:30 PM to maintain their target exposure ratio. Using a 10 trillion won AUM example, he showed that when markets rise 10%, the fund must buy an additional 2 trillion won of futures, and when markets fall 10%, it must sell 2 trillion won. This buying-more-when-rising and selling-more-when-falling mechanism structurally increases overall market volatility.
What four semiconductor value chains did Bae Jae-kyu recommend for investment?
Bae recommended long-term global investment in four core semiconductor value chains: memory (Samsung Electronics, SK Hynix), design (NVIDIA), foundry (TSMC), and equipment (ASML). He dismissed peak-out concerns by explaining that semiconductors wear out after 3 years and require continuous replacement with better performing products, ensuring sustained ecosystem growth.
