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today I’d like to talk a little about the US stocks that Koreans love the most. Based on the Korea Securities Depository’s (KSD) data over the past month, the number one most purchased stock is the Nasdaq. We’ll cover the TPU, PK, and FEF, which are leveraged products that track the Nasdaq and the Semiconductor Index by generation, and briefly touch upon the STORAGE and STORAGE.
There is also the Sol X ETF, which tracks the Semiconductor Index at 3x leverage and ranks 8th in total net purchases. I’m going to mention leveraged products, and if you ask what that is, theoretically, in the case of the T-Chu ETF, it is a 3x product that rises 30% when the Nasdaq and the Semiconductor Index rise 10%, and in the case of the Sol X ETF, it is a product that rises 30% when the Semiconductor Index rises 10%.
Of course, the same applies in reverse. What is the biggest advantage of these ETFs? The biggest advantage is that the results are certain in a short period. If you invest because you think the Nasdaq or the Semiconductor Index will skyrocket, others might have already made a one-fold profit, while you could make three-fold.
So, usually domestic When investors experience a sharp drop in the index and think, "It looks like it will rebound strongly the next day," they buy the 3x TQ ETF. Conversely, when the index is volatile and interest rate hike issues persist, and they predict the market will crash the next day, they buy a 3x ETF, which is presumed to be a master fund like SQQ.
This is exactly the kind of short-term trading approach you would take. However, in reality, there is always no room for doubt, and just as high risk accompanies experts, while these leveraged products certainly have advantages, there are also various disadvantages. Since there are many people who strongly object to this, I would like to mention three specific downsides today.
First, looking at the charts, the volatility is extremely high even if you just compare the 1x and 3x versions. The operating costs of the ETF itself are also very high, ranging from 2x to 5x compared to the 1x version. The chart you are currently looking at compares Kyo, which tracks the Nasdaq 100 index, with the 3x TQ.
This is a chart from the past year. As you can see, when investing, you must consider two factors: performance and volatility. The 3x leverage ETF has enormous volatility, and while I saw the EF's own operating costs range from 0.2%, the 3x one actually charges an application fee of about 0.9%. So, if you ask how it compares to a 1x ETF that tracks the semiconductor index, a representative example is the SOXX ETF.
Even when comparing this to the 3x one, the 3x one has enormous volatility. Furthermore, regarding the ETF's own costs, while SOXX charges 0.43% per year, the 3x one charges a total of 6% per year— more than double the cost. Therefore, first, you need to be aware that the costs are very high. Second, looking at the 3x leverage ETF that utilizes futures and options, not only are there costs, but since you are borrowing money, naturally, interest costs are incurred.
Not only does the market undergo a correction during an uptrend, but interest costs are also fully absorbed into the yield, so the return on investment may be lower than expected. Even looking at the management fee structure alone, the annual fee is 0.95%, while the annual fee is 0.75% and other fees are 0.22%.
Feature 5 suggests there may be fluctuations, and in fact, given the current US interest rate hikes, if you intend to consider the interest costs of leveraged ETFs, I believe you need to be somewhat cautious about long-term investment. Also, in the case of an ETF that tracks the semiconductor index at 3x leverage, the only difference is that it tracks semiconductors; the product structure is identical to a 3x leveraged ETF.
The third disadvantage is that leveraged ETFs link to daily fluctuation rates, which creates a volatility effect. This is actually the most critical aspect. For example, we can broadly divide the analysis into three scenarios: when the market rises, when it drops, and when it falls. Assuming the market rises, if the index is at 100 and then becomes +c When there is a percentage change, a standard TQ ETF goes down to 110, and if it gains another 10% from there, it rises to 121.
If we compare this to a 3x leveraged TQ ETF, it goes up from 100 to 131, and then gains another 30% to 160. Consequently, while the standard TQ ETF yields a profit of 21%, the 3x version can yield a profit of 69%. It’s truly incredible, isn't it? However, this applies only when the market is continuously rising.
Usually, people imagine this scenario and venture into leveraged investing. But while recklessly predicting the market can lead to losses, it is also good to consider the scenarios where volatility increases and the market declines, as well as the happy ones. If we consider a decline, for example, if the index follows a -10% drop from 100, the standard TQ ETF fluctuates between 90 and 81, whereas the 3x ETF...
from 100... If the price drops from 70 to 49, the 1x leveraged ETF shows a loss of -19%, whereas the 3x leveraged ETF shows a loss of -51%. However, the biggest problem arises during sideways trading. If we assume a process where plus or minus 10% is better based on a base of 100, the 1x ETF goes from 100 to 110 and then drops to 9, resulting in a final loss of -1%.
In contrast, the 3x leveraged ETF goes from 130 to 130 and then drops to 91, resulting in a final loss of -9%. When considering efficiency, the 3x ETF is only advantageous when the market is consistently rising; in other cases where the market is falling or consolidating, considering the open market itself and the 3x leveraged ETF, it is an investment with massive losses, so I think its investment attractiveness is somewhat lower.
In fact, having prepared three scenarios, it is an investment that is correct only when rising, but disadvantageous when consolidating or falling. So, simply put, statistically, you only have a 33.3% chance of winning. Also, based on this standard, while the probability might be higher for representative stocks like TQ, QLD, or SLX (ranked 1st, 2nd, and 3rd), leverage ETFs with low asset under management (AUM) are very expensive because they include costs and interest expenses.
If they cannot withstand the pressure, they might reduce the leverage multiplier from 3x to 2x or even face delisting. A representative example is the MTB ETF that was delisted on July 2, 2020. There was also the ETF Dust 5T (JEN ticker) which reduced its leverage multiplier from 3x to 2x. So, it would be good to be aware of these three disadvantages.
You might then wonder if leverage investing is the same in the US, a developed capital market. Korea is not particularly like that, but the US certainly does. Well, in the market where leverage is accumulated, leverage is a form of leverage. The weighting of leveraged ETFs is very low, at around 8% based on the number of stocks and 1% based on fund manager performance.
In contrast, the weighting of leveraged and inverse ETFs is very high, ranging from 50% to 60%. In a way, this can be seen as an indicator that leveraged ETFs, specifically 3x and 1x leveraged ETFs, best suit the investment tendencies of Koreans. In fact, Korean asset management companies have been creating these external products because there is continuous demand for them.
However, despite this, I still consider it an attractive investment option for those looking to approach short-term trading by targeting short-term volatility and direction. For these individuals, I will explain the US 3x leveraged ETFs, specifically the upside and downside ETFs ranging from 1x to 3x leverage, and identify some representative examples.
Regarding the most important US 3x leveraged ETF, such as the SMB 500, the 3x ETFs include the ticker SPX for the upside and the SPXU ETF for the downside. For the 2x ETFs, there is the SSO for the upside and the SDS and Jeff Beta. For the weaving trend, the SPY ETF represents the upward direction, while SH is representative for the downward direction.
In the case of the Nasdaq, the 3x leveraged ETFs include the upward MI TQ and the downward direction SQ PQ. For the 2x leveraged ETFs, the upward direction is represented by QLD, while the overnight QI DIRECTION ETFs are representative for the 1x leveraged ETFs, with QQ for the upward direction and LPS Q for the downward direction.
Looking at the Dow Jones Index, the 3x leveraged ETFs include the U-Dow for the upward direction and the SD 5W ETF for the downward direction. For the 2x leveraged ETFs, the upward direction is represented by DDM, and after rising, XD 1Q and BUD are representative. For the 1x leveraged ETFs, the upward direction is represented by the DIY ITF, and the downward direction is represented by the Dog ETF.
In a highly volatile market like the present, I actually do not make general recommendations, but if you have clear conviction regarding the direction and have set a specific timeframe in human history, approaching it with short-term momentum or approaching it as a risky investment, then [it is all], and [it is] the relevant key I think it would be good if you chose Buju's Sanha.
If today's video was helpful, please leave a like and a comment. See you in the next video. Bye.
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