Samsung Asset Management will introduce two single-stock leverage products based on Samsung Electronics and SK Hynix.

Samsung Asset Management on May 26 held a press briefing at The Plaza Hotel in Jung-gu, Seoul. It introduced the management strategy, investment uses and investor precautions for the 'KODEX Samsung Electronics Single Stock Leverage' and the 'KODEX SK Hynix Single Stock Leverage'. The two products are set to be listed on May 27.

The two products to be listed each track twice the daily returns of a single stock, Samsung Electronics and SK Hynix, respectively. Market interest is high because they are single-stock products that allow leveraged investment in major domestic semiconductor blue chips.

Samsung Asset Management is Asia's first manager of leveraged exchange-traded funds (ETFs). Since launching the 'KODEX Leverage ETF' in February 2010 as the first of its kind in Asia, it has built about 16 years of experience managing leveraged ETFs.

As of the end of April, net assets in KODEX's leveraged ETFs total 19.8 trillion won, the largest in Asia. It has maintained about a 91 percent market share in the domestic market for leveraged and inverse products tied to major indexes.

Samsung Asset Management will launch the two KODEX single-stock leverage products as spot-based leverage products. Compared with futures-based leverage, spot-based leverage has a lower share of futures in the portfolio, reducing trading costs incurred during the monthly rollover process. It can respond flexibly depending on spot and futures market conditions, and investors can also receive dividend income from the spot holdings, it explained.

It also differentiated the management method by designing, for the first time in the industry, a leverage product creation and redemption method based on in-kind contributions rather than cash contributions.

It said this can reduce brokerage commissions and securities transaction taxes incurred by the fund when managers trade directly, and help those effects translate into lower costs for investors.

It also strengthened its liquidity provision system. Samsung Asset Management said it secured 25 authorised participants (APs) and 15 liquidity providers (LPs) for the single-stock leverage products, the highest level in the industry. It plans to provide a robust order-quote environment from the first day of listing to reduce the tracking gap versus intraday net asset value (iNAV).

Investment risks are large. Because single-stock leverage products track twice a stock's daily returns, losses can widen sharply over a short period if the share price moves against an investor's expectations. A 'negative compounding effect' that reduces principal can also occur as the share price repeatedly rises and falls.

Lim Tae-hyuk (임태혁), head of ETF management at Samsung Asset Management, said, "We prepared KODEX single-stock leverage by adding innovation that takes investor costs into account, on top of all know-how accumulated since 2010." He added, "We will work together with liquidity providers to ensure we can supply ample liquidity."