"Saying that single-stock leveraged ETFs are the main cause of recent market volatility is an overstatement."
As the share prices of Samsung Electronics and SK hynix have swung sharply, single-stock leveraged ETFs have been singled out as the primary culprit behind heightened market volatility. The asset management industry, however, pushes back, arguing that such products are not the sole driver.
Jeong Eui-hyeon, head of ETF management at Mirae Asset Global Investments, said in a recent interview that while "the daily rebalancing of single-stock leveraged ETFs can contribute to volatility to some degree," viewing leveraged ETFs as the main cause of recent market swings "is an overstatement."
Jeong said the recent surge in volatility for Samsung Electronics and SK hynix reflects a combination of global semiconductor industry conditions and broader macroeconomic factors. "Volatility has expanded across global semiconductor names — not just Samsung Electronics and SK hynix, but also US firms like Micron," he said. "It is the result of multiple factors converging, including geopolitical anxiety from the US-Iran war and concerns about a peak in semiconductor earnings."
The argument that single-stock leveraged ETFs amplify volatility centers on what is known as a "short gamma" structure. Leveraged ETFs rebalance near the close of each trading session to maintain their target return. When a stock rises, the fund buys more of the underlying asset; when it falls, the fund sells. Critics argue this creates a self-reinforcing cycle — buying begets more buying in a rally, and selling begets more selling in a downturn — that amplifies price swings.
Jeong said the short-gamma effect is limited in the domestic market. "When retail investors increase their purchases of single-stock leveraged ETFs during a downturn, new subscriptions flow in and the fund manager buys back the underlying asset accordingly," he said. "Even if rebalancing generates some selling, the buying from new subscriptions offsets it, reducing the net selling impact."
"Moving the share price of a stock like Samsung Electronics, which sees daily trading volume in the trillions of won, requires transactions of considerable scale," he said. "The rebalancing from single-stock leveraged ETFs alone is not at a level that can sway the market."
Korea Exchange data bear that out. On Thursday, Samsung Electronics recorded a daily trading value of 5.82 trillion won ($3.91 billion). On the same day, the combined assets under management of seven Samsung Electronics single-stock leveraged ETFs stood at 4.89 trillion won — less than the stock's single-day trading volume.
Jeong also highlighted the positive role of single-stock leveraged ETFs. "The biggest advantage is that they give individual investors access to derivatives in a standardized form," he said. "The structure carries relatively limited risk compared with individuals trading futures or options directly." He added that the products can also improve liquidity and price discovery in the individual stock futures market.
He drew a line, however, at calling leveraged ETFs suitable for all investors. "Leveraged products are inherently high-risk assets, so they should only be approached by investors who fully understand the structure and the risks involved," he said. "If you cannot set a target return and a stop-loss threshold, it is better not to invest."
For investors already holding Samsung Electronics or SK hynix, Jeong suggested a strategy of shifting a portion of the position into leveraged ETFs during a downturn and switching back to ordinary shares on a rebound. "This approach can help improve recovery momentum after a decline while also reducing the negative compounding effect that comes with long-term holding," he said.
On recent concerns about a peak in the memory chip cycle, Jeong rebuffed the idea that the sector's long-term growth outlook has been impaired. "Nobody thinks of Nvidia's GPU and AI accelerator business as a cyclical industry," he said. "The memory industry is at an inflection point where it is coming to be seen as a growth industry as well."
"The market will go through repeated cycles of questioning AI investment, resolving those doubts, and then questioning again," he said, adding that investors need to distinguish between short-term volatility and the long-term growth trajectory.
moon@heraldcorp.com
