'Father of ETFs' warns Korean investors to stop single-stock leveraged investments

Bae Jae-gyu, CEO of Korea Investment Management and widely recognized as the 'father of ETFs in Korea,' has issued a strong warning against investing in single-stock leveraged products. In an unusual public statement from a fund management executive, Bae urged investors to refrain from such investments.

In a social media post titled 'Performance Analysis of Individual Stock Leveraged and Inverse 2x Products,' Bae expressed his apologies as a CEO of a company managing such funds, but concluded, "The conclusion is not to invest in individual stock leveraged and inverse 2x products."

He explained that over time, even if the underlying asset, such as Samsung Electronics or SK Hynix, returns to its original price, the ETF price may not recover. Bae highlighted that the structure of these leveraged products, which adjust asset allocation daily to meet target multiples, causes daily losses to accumulate, especially during periods of high volatility. This compounding effect can lead to significant discrepancies between theoretical and actual returns.

For instance, Bae cited that SK Hynix fell 17.9% from May 27 to July 16. During the same period, the largest single-stock leveraged product tracking SK Hynix saw a loss of 47.5%, significantly exceeding the theoretical loss of 35.8%. Similarly, inverse 2x products, often called 'gobus,' also underperformed, with an SK Hynix price drop of 17.9% resulting in a 31.1% loss instead of the expected 35.8% gain.

Bae further elaborated in a phone call with Dong-A Ilbo that he posted the warning because he believes investors will continue to lose money. The post was later deleted from social media approximately three hours after it was published.