Hanyang Securities released an analysis on the 29th showing that single-stock 2x leveraged ETFs tracking SK Hynix suffered average losses of 49.4% from May 27 to the 22nd, while the underlying SK Hynix stock declined only 18.4% during the same period. The disproportionate loss occurred due to negative compounding effects inherent in the ETF structure, which tracks daily returns rather than cumulative period returns. The securities firm published financial education content titled 'Leverage Investment Advisory' to help investors understand the structural risks of single-stock leveraged ETFs, which have attracted significant retail interest in the Korean stock market.
SK Hynix and Samsung Electronics Leveraged ETFs Record Losses Exceeding Double Underlying Stock Declines
Hanyang Securities compared closing prices of Samsung Electronics and SK Hynix stocks with their corresponding leveraged ETFs listed domestically from May 27 to the 22nd. Samsung Electronics stock fell 15.2% while Samsung Electronics single-stock leveraged ETFs recorded an average return of -40.2%. SK Hynix stock declined 18.4% while SK Hynix single-stock leveraged ETFs showed an average return of -49.4%. The analysis demonstrated that in a structure where daily returns accumulate each day, the final return of leveraged ETFs may not simply match double the underlying asset's return.
Simulations Demonstrate Negative Compounding Effect on Zero-Return Scenarios
The content included a simulation maintaining the same daily volatility of underlying assets during the period while assuming final cumulative returns of 0%. The analysis showed Samsung Electronics single-stock leveraged ETFs recorded an average return of -14.4%, while SK Hynix single-stock leveraged ETFs showed an average return of -21.1%. Under the assumption that identical volatility continued for six months, 2x leverage returns recorded an average of -39.8% for Samsung Electronics and -50.3% for SK Hynix even when underlying assets returned to zero. After one year, the figures expanded to -63.4% for Samsung Electronics and -75.4% for SK Hynix.
Hanyang Securities Publishes Educational Content on Leveraged ETF Risks
A Hanyang Securities official stated that single-stock 2x leveraged ETFs are products with high investor interest, but many cases exist where investors invest without fully understanding the product structure. The official added that the firm will continue to expand financial education content to help customers easily understand the characteristics and precautions of financial products, and will lead the spread of sound investment culture. The educational content explains that single-stock 2x leveraged ETFs are structured to track double the daily return of underlying assets, not double the total period return.
FAQ
Why did SK Hynix leveraged ETFs lose 49.4% when the stock only fell 18.4%?
The disproportionate loss occurred due to negative compounding effects in the ETF structure. Single-stock 2x leveraged ETFs track double the daily return of underlying assets rather than double the cumulative period return, causing the final return to diverge significantly from twice the stock's decline when daily returns accumulate over time.
What happens to leveraged ETF returns if the underlying stock returns to its starting price?
According to Hanyang Securities' simulation, even if underlying assets return to 0%, leveraged ETFs can show significant losses due to repeated price fluctuations. The analysis showed that with identical volatility continuing for six months, Samsung Electronics leveraged ETFs would average -39.8% and SK Hynix leveraged ETFs would average -50.3% even when the underlying stocks returned to their starting prices.
