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🇰🇷 South Korea /Economy & Trade

'Father of ETFs' Bae Jae-gyu Reiterates Stance: Single-Stock Leverage Should 'Die a Natural Death'

From Hankyoreh · () Korean

Translated from Korean, summarized and contextualized by DistantNews.

At a glance

News Named sources Context piece
  • Bae Jae-gyu, CEO of Korea Investment Management, reiterated his stance against single-stock leveraged ETFs, calling for them to "die a natural death."
  • He warned that directional accuracy alone is insufficient for leveraged products due to volatility and daily rebalancing, which can rapidly erode value.
  • Bae, known as the 'father of ETFs' in Korea, previously advised investors to stop trading these products, even those offered by his own company.

Bae Jae-gyu, CEO of Korea Investment Management and widely recognized as the 'father of ETFs' in South Korea, has once again voiced strong opposition to single-stock leveraged exchange-traded funds (ETFs). He advocates for these products to "die a natural death," emphasizing that investors should cease trading them.

I know well how leveraged and inverse 2x products work. Simply getting the direction right is not enough. As volatility increases and ups and downs repeat, the product's value can be rapidly eroded due to daily rebalancing and compounding effects.

— Bae Jae-gyuExplaining the risks associated with leveraged and inverse ETFs.

In a recent Facebook post, Bae explained his concerns, stating, "I know well how leveraged and inverse 2x products work. Simply getting the direction right is not enough. As volatility increases and ups and downs repeat, the product's value can be rapidly eroded due to daily rebalancing and compounding effects."

He questioned the ability of investors to consistently time the market, noting, "Many people think, 'It's fallen this much, so it must rise now,' but how many times have we accurately predicted such investment timing? You might make a profit once or twice, but it's difficult to become rich continuously through such methods."

Many people think, 'It's fallen this much, so it must rise now,' but how many times have we accurately predicted such investment timing? You might make a profit once or twice, but it's difficult to become rich continuously through such methods.

— Bae Jae-gyuQuestioning the effectiveness of market timing for leveraged investments.

Bae's stance is particularly notable as his own company offers such products. He previously posted a message advising investors to stop trading them, a move that generated significant attention within the financial industry. While he later deleted that post, his conviction remains. He clarified that "letting them die a natural death" means "gradually reducing them is the best approach."

It is best not to do it. It is not something that should only be asked of investors. They should be made to die a natural death, not be delisted.

— Bae Jae-gyuExpressing his strong opinion on the future of single-stock leveraged ETFs.

The CEO's warnings come amid increased market volatility, which has amplified the risks associated with leveraged and inverse ETFs, particularly those tracking single stocks like Samsung Electronics and SK Hynix. His consistent advocacy aims to protect investors from the potential pitfalls of these complex financial instruments.

Gradually reducing them is the best approach.

— Bae Jae-gyuClarifying his suggestion for phasing out leveraged ETFs.
DistantNews Editorial

Originally published by Hankyoreh in Korean. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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