[CBC News] Over the past month, 'leveraged ETFs' in the domestic stock market unleashed unexpected losses, wiping out investors' hard-earned money. Contrary to the perception that they are simple and safe, it has been confirmed that failing to properly understand the product structure can lead to losing a significant portion of one's principal.

A Major Semiconductor Stock Falls 7%, But Leveraged ETFs Plunge Over 30%

The stock price of a specific major semiconductor company fell approximately 7% over the course of a month. Simply applying a 2x multiplier, one would expect a loss of around 14%. However, leveraged ETFs based on the same underlying asset recorded average losses exceeding 30%. This figure far more than doubles the expected loss.

A group of leveraged ETFs based on another major stock showed a similar pattern. While the underlying stock dropped about 18%, the related ETFs plummeted by an average of over 40%. The losses far exceeded double the decline rate of the underlying asset.

The Core Cause: 'Negative Compounding Effect'

At the heart of this amplified loss lies the so-called 'negative compounding' effect. Leveraged ETFs are designed to mechanically match daily price movements to a predetermined multiplier. Even if a stock price fluctuates up and down repeatedly and returns to its original level, the structure inherently accumulates losses through the daily compounding process.

In fact, there have been confirmed cases where a specific stock experienced a sharp decline followed by a sharp surge over two days, resulting in almost no net change in the stock price, yet the leveraged ETF on the same asset recorded a clear loss during the same period. Contrary to the expectation that one can generate large profits by correctly predicting the direction over a short period, the structure is such that the longer it is held in a highly volatile market, the more losses accumulate.

Two Things You Must Check Before Investing in ETFs

First, the product's tracking method. The risk level varies completely depending on whether it is a regular ETF that simply follows an index or a specific stock's price as is, or a structured product that applies a multiplier or tracks the inverse direction. In particular, leveraged and inverse ETFs are designed based on daily returns, meaning that the discrepancy with the actual cumulative return of the underlying asset can grow increasingly wider when held over the long term.

Second, the investment horizon plan. General index-tracking ETFs are often used as diversification tools intended for long-term holding. In contrast, leveraged and inverse products are originally designed with short-term trading in mind. The turnover rate of the leveraged ETFs involved in this incident was significantly higher than the overall ETF market average, demonstrating that a considerable number of investors are already approaching them for short-term trading purposes.

Same 'ETF' Label, Wildly Different Risk Levels

While these products have the advantage of maximizing returns if the direction of the underlying asset is correctly predicted, losses can also become far greater than expected if the direction is misjudged or a period of high volatility persists. This incident clearly demonstrates that even if they carry the same name of 'ETF,' the nature and magnitude of risk differ entirely depending on the product structure.

Before investing, careful deliberation is required to thoroughly examine how the product is designed and whether it aligns with one's own investment horizon and risk tolerance.

[※ This article is an investment reference material produced with the assistance of AI. It does not constitute investment advice, and the responsibility for investment decisions and their consequences lies solely with the investor. This publication bears no legal or financial responsibility.]