Melbourne/Tokyo – A speculative frenzy in South Korea’s artificial intelligence chipmaker market has vividly demonstrated the acute risks of leveraged exchange-traded funds (ETFs), with thousands of retail investors facing significant losses. Sydney day trader Mark Olsen described the market as “brutal,” observing fellow traders getting “wiped out” as shares in giants like SK Hynix and Samsung Electronics swung wildly. This week, a new class of leveraged ETFs tied to South Korean chipmakers tumbled, inflicting pain on those chasing amplified gains with borrowed money. Leveraged ETFs utilise debt and financial derivatives to multiply the daily return of an underlying benchmark, typically offering two to three times daily exposure.
Australian ETF providers have cautioned against this high-risk investment strategy, labelling it a potential path to “wealth destruction” for ill-informed investors. While these products can deliver outsized returns, they also exacerbate volatility. Australia has largely avoided the single-stock leveraged ETF phenomenon gripping South Korea, where such products have driven the Kospi Index up significantly. However, local investors are increasingly embracing broader leveraged ETFs, with assets in these Australian products climbing to $2.3 billion, up from $900 million five years ago, mirroring a wider trend in ETF adoption and retail trading.
Currently, 19 leveraged products are available in Australia, tracking various equities and fixed income, but their performance has been mixed. Global X, an Australian ETF provider, offers the Ultra Long Nasdaq 100 Complex ETF, which returned nearly 70 per cent over the past year, while its Ultra Short counterpart lost 50 per cent. Marc Jocum, an investment strategist at Global X, likened leveraged ETFs to a “Formula 1 car” – effective for professionals, but not for everyday users, warning they can be “wealth-destroying vehicles” long-term if misused. Though Australian offerings typically focus on broader indexes rather than single stocks, industry experts like VanEck’s Arian Neiron still urge caution, reiterating that gearing amplifies losses just as powerfully as gains.
