US asset managers retreat from Korea-linked leveraged ETFs
A Wall Street sign near the New York Stock Exchange in New York / AFP-Yonhap
Commercial viability weakens amid fading investor interest in Seoul stocks
U.S. asset managers are pulling back from leveraged exchange-traded funds (ETFs) tied to Korean companies, liquidating existing products and scrapping planned launches as a local stock market downturn dampens investor appetite, industry officials said Monday.
Tradr ETFs, a brand of U.S. asset manager AXS Investments, decided on Oct. 20 to delist two funds offering leveraged long and short exposure to SK hynix's Nasdaq-listed American depositary receipts (ADR), according to a filing with the U.S. Securities and Exchange Commission.
The funds, Tradr 2X Long SK hynix and Tradr 2X Short SK hynix, will cease trading on Nov. 5, with liquidation and cash distributions based on their net asset values expected on or around Nov. 12. The closures come just three months after the funds were launched.
Industry officials said the move may reflect limited prospects for gaining market share and difficulties attracting anticipated trading volumes and assets under management. The two funds had combined net assets of just over $2 million as of Friday.
Competition has also intensified as multiple asset managers, including ProShares, Direxion and GraniteShares, have rolled out leveraged ETFs to capitalize on investor interest in SK hynix following the July 10 listing of its ADR.
Adding to the pressure, the artificial intelligence-driven stock rally has reversed sharply in the second half of the year. SK hynix shares have plunged from a June 25 peak of 2,987,000 won ($2,260) to 1,263,000 won on Friday, while the benchmark KOSPI has tumbled from its June 19 record high of 9,385.59 to 5,550.30.
"Over the past 18 months, investors have made heavy use of leveraged products tied to individual stocks, but after experiencing significant volatility, they are shifting toward more diversified products, such as index-based funds," Oh Gee-seok, head of Asia at U.S. asset manager REX Financial, said during a Sept. 29 press conference.
The downturn has also prompted some U.S. ETF providers to reconsider planned Korea-linked products.
ProShares filed requests with the SEC on Oct. 19 to withdraw registration statements for two planned funds, ProShares Ultra Hyundai Motor and ProShares Ultra Samsung Electro-Mechanics. Both were designed to deliver twice the daily returns of the underlying Korean companies' shares. The initial registration statements were filed in June.
"The moves are seen as part of a broader business decision by leveraged ETF providers to reassess expected demand and commercial viability for individual products and adjust their fund portfolios accordingly," said Kim Bora, head of Asia at Leverage Shares, the largest issuer of single-stock exchange-traded products in Europe.
Despite the pullback from Korea-linked products, the country continues to attract interest from global asset managers, supported by strong retail demand for leveraged ETFs.
Several senior executives have recently visited Seoul to explore opportunities in the Korean market.
Tradr ETFs President Russell Tencer made his first visit to the country on Sept. 17, saying the firm was considering launching additional products tied to Korean technology companies. Matthew Tuttle, CEO of Tuttle Capital Management, and Scott Acheychek, COO of REX Financial, also visited Korea that month.