Bae Jae-kyu, CEO of Korea Investment Management, who introduced the first exchange-traded funds (ETFs) in Korea, has issued a warning against investing in single-stock leveraged products.

It is highly unusual for the CEO of an asset management firm that operates such products to emphasize their investment risks.

On July 20, Bae wrote on his social media, "I know I will face criticism, but I hope you stop investing now." He added, "As the CEO of an asset management firm that operates single-stock leveraged ETFs, I am sorry to say this, but my conclusion is that you should not invest in single-stock leveraged and 2x inverse ETFs."

He explained, "Even if time passes and the underlying stock returns to its original price, it is highly likely that the ETF price will not return to its original level." He further noted, "Especially when the volatility of the underlying stock is as high as it is now, the structure causes losses to accumulate every day."

Bae added, "This is because no one expected volatility to become this high."

According to the analysis data released by Bae, from May 27 to July 16, the stock price of SK Hynix fell from 2,243,000 KRW to 1,843,000 KRW, a decline of 17.9%.

During the same period, the loss rate for the single-stock leveraged product of SK Hynix with the largest trading volume and assets under management (AUM) was 47.5%.

While the theoretical loss rate, applying a simple 2x multiplier to the decline of the underlying asset, is 35.8%, the actual loss was 11.7 percentage points higher.

He also stated that 2x inverse products, often called "Gob-bus," yielded results different from expectations.

Theoretically, they should have generated a 35.8% return, but they actually recorded a 31.1% loss. This is due to the "negative compounding" effect, where the principal of the ETF erodes as the underlying stock price experiences repeated sharp fluctuations.

The structure is such that as the volatility of the underlying asset increases, the compounding effect accumulates, causing the long-term return to gradually diverge from the simple multiplier.

Korea Investment Management currently operates single-stock leveraged products, including "ACE Samsung Electronics Single Stock Leverage" and "ACE SK Hynix Single Stock Leverage."

The rare warning from the CEO of an asset management firm against investing in its own products drew significant attention, but as the controversy grew, Bae deleted the post about three hours later.

Reported by Kim Minjeong | Video by Seo Byeong-wook | Graphics by Yang Hye-min | Produced by SBS Digital News