"Should Have Bought Too": Retail Investors Snap Up KRW 1.38 Trillion in Leveraged ETFs Amid Four-Day Index Plunge

Seven of Top 10 Net-Bought Stocks Are 'Leveraged' by Individuals
Some Take Profits as Market Rebounds on March 5
"Investors Must Also Recognize Risks of Leveraged ETFs"

Despite the turbulent volatility in the market, retail investors have been seizing 'buy the dip' opportunities and actively purchasing leveraged ETFs. This trend is interpreted as being driven by expectations that the stock market will eventually rebound in the long term.

According to ETF Check by KOSCOM on March 6, among the top 10 stocks with the highest net purchases by individuals on March 4, when the KOSPI index dropped by 12.06%, seven were leveraged ETFs. The most purchased was KODEX KOSDAQ150 Leveraged, with individuals buying KRW 672.7 billion worth. The second was KODEX Leveraged, with KRW 424.1 billion in net purchases. Over KRW 1 trillion in total was funneled into these two products. Despite their returns the previous day being -27.72% and -24.35%, respectively, individual investors still chose to buy.

After individual investors made large purchases of leveraged ETFs, the KOSPI rebounded by 9.63% and the KOSDAQ by 14.10% on March 5, prompting some to realize profits. Individuals recorded net sales of KRW 386.9 billion in KODEX KOSDAQ150 Leveraged and KRW 195.3 billion in KODEX Leveraged.

This rush of retail investors into leveraged ETFs is attributed to their view of the recent decline as a 'buy the dip' opportunity. An official from the financial investment industry said, "Individuals saw the two-day market plunge as a short-term bottom. In fact, during this period, the KOSPI was positioned below its 50-day moving average, a strong support line in past short-term declines, and with the price-to-earnings ratio at about 8 times, the risk of further declines was limited." They added, "Buying the dip after a sharp short-term decline can be positive, especially since profits in leading sectors like semiconductors have not been undermined."

The appeal of potentially earning double the return by effectively utilizing periods of index volatility is making leveraged ETFs increasingly popular. The number of people who completed the Korea Institute of Financial Investment's leveraged ETP education program—a requirement for purchasing leveraged ETFs—reached 309,449 in just the first two months of this year, already surpassing last year's total of 205,403 participants.

However, experts also advise that investors must be fully aware of the risks associated with leveraged ETFs. Since leveraged ETFs track daily fluctuations rather than cumulative returns, they are subject to the phenomenon of 'negative compounding.' If the underlying index surges one day but drops sharply the next, the index itself might return to its previous level, but the leveraged ETF can still result in losses.

Nam Yongsoo, Head of ETF Management at Korea Investment Management, said, "Because leveraged ETFs track twice the daily returns, there is a difference between this and achieving twice the returns over a period. As volatility increases, leveraged ETFs inevitably become less advantageous for long-term investing, which is something investors should always keep in mind."

This content was produced with the assistance of AI translation services.