'Don't invest': 'Father of Korean ETFs' warns against single-stock leveraged funds

In a Facebook post, Bae Jae-kyu, the CEO of Korea Investment Management, wrote that the products pose a huge risk of accumulating losses.

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Bae Jae-kyu, CEO of Korea Investment Management, widely known as the father of Korea's exchange-traded funds, speaks during an interview with JoongAng Ilbo at the FKI Tower in Yeouido, western Seoul, on June 22.

2x leveraged ETFs and negative compounding

With a 2x leveraged exchange-traded fund, the price movement is doubled, which can result in losses even if a stock rises and then falls back to the original price.

How does this happen?

If a stock rises in value and then drops back to the original price, the share loses less by percentage as it falls.

For twice-leveraged stocks, however, losses are doubled, meaning that the share price may fall below the original value.

               Regular                 2x leveraged

Price     $100                     $100

Rise      $130 (+30%)       $160 (+60%)

Fall        $100 (-23.1%)    $86.08 (-46.2%)



Actual returns may differ based on the decimal places used to calculate gains and losses.

Bae Jae-kyu, the CEO of Korea Investment Management who is widely regarded as the father of Korea's exchange-traded funds (ETFs), warned investors Monday against buying single-stock leveraged ETFs amid heightened volatility in the domestic stock market.

"As the CEO of an asset manager that operates single-stock leveraged ETFs, I'm sorry to say this," Bae wrote on Facebook. "My conclusion is simple: Don't invest in single-stock leveraged or double inverse ETFs."

He explained that even if the underlying stock eventually returns to its original price, the ETF itself is unlikely to recover to the same level.

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"When volatility in the underlying stock is as high as it is now, the structure of these ETFs causes losses to accumulate on a daily basis," he said, and added it was to the fault of none. "No one expected volatility to become this extreme."

Industry observers say it is highly unusual for the head of an asset management company that issues and manages single-stock leveraged ETFs to publicly caution investors against buying the products.

Korea Investment Management currently manages the ACE Samsung Electronics Single Stock Leverage ETF and the ACE SK hynix Single Stock Leverage ETF.

Bae's Facebook post is currently deleted.


BY HYEON YE-SEUL [[email protected]]

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.

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