2x Leveraged Long SK Hynix, the most ruthless retail investor harvester of this year

It only takes four months for a wealth myth to turn into a wealth joke.

The 2x CSOP SK Hynix ETF was priced at only HK$16.30 at the end of last year, and surged to HK$193.65 in intraday trading on June 25, skyrocketing 11 times in less than half a year, once becoming the most popular ETF in the Hong Kong stock market.

But now its price is only HK$19.62, plummeting 89.87% in just four months, and its management scale has shrunk from HK$132 billion to HK$23.4 billion.

What is more poignant is that a large number of investors did not make any money at all in this wealth carnival.

Data shows that the fund's price plummeted 71% in July alone, while its share size rose against the trend with a net increase of 337 million units, hitting the highest monthly record since the beginning of this year, equivalent to nearly one third of the total share size at the end of July.

However, what these bottom-fishing funds waited for was an even deeper round of decline. In July, the average closing price of the fund was still HK$66.62. By October 21, the price had fallen to HK$19.62, down about 71% from the average price in July.

Ironically, while investors suffered huge losses, financial institutions reaped staggering profits.

According to the fund's financial report, in less than nine months since its establishment, CSOP Asset Management has accrued nearly HK$300 million in management fees, equivalent to the total management fee income of the Hong Kong ETF veteran Tracker Fund over nearly a decade.

But this is only a small part. What is truly astonishing is the leveraged business participated in by international giants such as BNP Paribas, Goldman Sachs, and JPMorgan Chase behind it. The fund spent HK$48.4 billion on swap fees and option-related costs alone, nearly 17 times the management fees.

In the end, investors did not achieve financial freedom, but ended up working for Wall Street first.

The ETF that once surged 11 times has become a scene of massive investors trapped at high positions

The 2x CSOP SK Hynix (7709.HK) can be regarded as one of the most frenzied financial products in this round of AI market rally.

At the end of last year, the price of this ETF was only HK$16.30. By June 25 this year, its intraday peak hit HK$193.65, surging nearly 11 times in less than half a year, once becoming the most popular single-stock leveraged ETF in the world.

But no one could have imagined that only four months later, the fund price would fall to HK$19.62, plummeting nearly 90% from its highest point.

A star ETF that once skyrocketed 11 times has almost given back all its previous gains.

Judging from the capital flow, this wealth carnival is very likely to cause huge losses to a large number of investors who entered the market later.

Data shows that at the end of February this year, the share size of the 2x CSOP SK Hynix ETF was 440 million units, and by the end of July, it had soared to 1.048 billion units, increasing by nearly 140% in five months, hitting the highest level of the year.

And these five months happen to be the period with the most drastic price fluctuations of the fund.

At the end of February, the fund price was only HK$39.74. By June 25, the intraday peak hit HK$193.65, surging nearly 4 times. But just over a month later, the price fell back to HK$42.52, plummeting 78% from the high point.

Interestingly, when the fund price began to plummet, the subscription capital did not ebb immediately.

From May to July, the cumulative net increase of the fund's share size was 480 million units, of which more than 70% of the net increased shares occurred in July. Throughout July, the fund price plummeted 71% in a single month, while the share size saw a net increase of 337 million units, hitting the highest monthly record since the beginning of this year.

On one hand, the fund is plummeting, on the other hand, there is still a large amount of net capital inflow.

The average closing price in July was still HK$66.62. By October 21, the fund price had fallen to HK$19.62, down about 71% from the average price in July.

In other words, a large number of investors who entered the market in this round of surge and slump have already suffered heavy losses.

However, if it is only trapped by chasing high, it is not something new. The most outrageous thing is the return difference between this product and SK Hynix's underlying stock.

Calculated from the end of February this year to October 21, the underlying stock of SK Hynix actually still rose by 21.96%, but the 2x CSOP SK Hynix ETF has fallen by 50.63% cumulatively.

In the same market trend, people who bought SK Hynix's underlying stock still made a 22% profit, while people who bought the 2x leveraged ETF lost half of their principal, with a return difference of more than 72 percentage points.

Why is the final decline so different even with twice the leverage? The problem lies in the product design of leveraged ETFs.

In simple terms, a 2x leveraged ETF recalculates its principal every day, and adjusts the leverage on this basis.

If the stock price keeps rising, the profit earned yesterday will also be included in the principal the next day to continue amplifying returns. Conversely, if the stock price keeps falling, as the principal shrinks continuously, the subsequent loss amount will be reduced accordingly.

But the most troublesome scenario is that the stock price rises and falls repeatedly.

For example, suppose the SK Hynix stock price falls from 100 units to 80 units, and then rises by 25%, it can return to 100 units.

But the 2x leveraged ETF is different. On the first day, if the underlying stock falls by 20%, the ETF will fall by 40%, and 100 units will only leave 60 units; on the second day, if the underlying stock rises by 25%, the ETF can rise by 50%, but since the principal is only 60 units left, it can only return to 90 units in the end.

The result is that the SK Hynix stock price returns to the original point, but the leveraged ETF loses 10%.

This is the so-called volatility drag. The more the stock price fluctuates back and forth, the easier it is for the return of the leveraged ETF to deviate from twice the cumulative rise and fall of the underlying stock.

The trend of SK Hynix this year has exactly experienced such drastic fluctuations. From the end of February to October 21, SK Hynix first surged all the way, then pulled back sharply. In the end, the underlying stock still rose by 22%, but the 2x leveraged ETF lost half of its principal.

Although most investors lost money, some people made a fortune from it.

Investors suffered huge losses, while financial institutions turned it into a big business

In this leveraged carnival, the only party that makes steady profits without losses is financial institutions.

First look at the fund manager CSOP Asset Management. The annual management fee rate of the 2x CSOP SK Hynix ETF is as high as 1.6%, which is a relatively high level in the ETF industry.

In contrast, the 2x long Hang Seng Index ETF also under CSOP Asset Management has a management fee rate of only 0.99%, and the veteran Tracker Fund in the Hong Kong ETF market has an even lower fee rate.

It seems that there is only a difference of a few tenths of a percentage point, but when the fund size reaches hundreds of billions of Hong Kong dollars, the situation is completely different.

According to the fund's first interim report, from its establishment on October 14, 2025 to June 30, 2026, the actual accrued management fee was 36.87 million US dollars, equivalent to about HK$288 million.

For comparison, the annual management fee of the Tracker Fund in 2025 was only HK$29.61 million. In other words, the management fee accrued by the 2x CSOP SK Hynix ETF in less than nine months is close to the level of the Tracker Fund in ten years.

But this management fee of nearly HK$300 million is only a small part of the entire leveraged business.

What is really surprising is another sum of expenses. According to the fund's interim report, from its establishment on October 14, 2025 to June 30, 2026, the cumulative swap fees and option-related costs of the 2x CSOP SK Hynix ETF reached 620 million US dollars.

It is equivalent to about HK$48.4 billion, nearly 17 times the management fees.

In less than nine months, tens of billions of Hong Kong dollars have been spent just to obtain and maintain the leverage exposure.

How was this sum of money spent? In fact, we can start from the operation mode of leveraged ETFs.

Ordinary ETFs usually use investors' money to buy corresponding stocks or other assets. But for the 2x CSOP SK Hynix ETF to obtain twice the leverage, the funds invested by investors alone are obviously not enough.

Suppose the fund has only HK$10 billion in net assets, but wants to obtain market exposure equivalent to HK$20 billion of SK Hynix stocks, what should it do?

One of the main methods is to sign swap contracts with international investment banks. In simple terms, the fund agrees with the bank that the bank will provide the return exposure linked to the rise and fall of SK Hynix's stock, and then settle according to the contract.

In order to perform the contract, the bank needs to finance, hold or trade relevant stocks and derivatives, and also manage the risks brought by market fluctuations.

The fund needs to pay fees for these services. It sounds a bit complicated, but in essence, it can be understood that if investors want to use HK$10 billion of funds to obtain HK$20 billion of stock risk exposure, someone must help them provide additional leverage.

This is obviously not a free service. According to the fund's financial report, as of the end of June, the swap counterparties of the 2x CSOP SK Hynix ETF included BNP Paribas, Citigroup, Goldman Sachs, JPMorgan Chase, Nomura and UBS.

Almost a group of the most well-known international investment banks in the world have participated in this business.

Moreover, the charge for this business is not cheap. According to the information disclosed by the fund, the swap fee is mainly related to the provided leverage exposure, and the rate usually refers to the benchmark interest rate of South Korea plus a floating spread.

According to the product document in June, the expected annual swap fee rate is 2% to 10%. If simply calculated according to twice the leverage exposure, it is equivalent to possibly consuming 4% to 20% of the fund's net assets every year. This does not include management fees and other related costs.

In other words, before investors start making money, they already need to pay a considerable fee to obtain additional leverage exposure.

Many people want to achieve financial freedom through leverage, but end up paying an expensive tuition fee to Wall Street first.

Summary

One of the important reasons why ETFs were initially welcomed by investors is that they are simple, transparent and low-cost. By buying a basket of stocks to diversify risks and holding them for the long term, investors have the opportunity to obtain the average market return.

But nowadays, financial products are becoming more and more complex, while the participation threshold is getting lower and lower.

Single stock, 2x leverage, swaps, options and daily position adjustment are packaged into an ETF that can be bought and sold at any time. Investors only need to click buy, but behind it is a complex financial transaction structure.

The 2x CSOP SK Hynix ETF is a typical example.

It surged nearly 11 times in half a year, and plummeted nearly 90% in four months. A large number of capital that chased the rise suffered heavy losses, while the fund manager had accrued nearly HK$300 million in management fees in advance, and the swap and option-related costs generated around leveraged transactions reached as high as HK$48.4 billion.

The wealth myth of investors has been shattered, but the financial service business surrounding this market trend has reaped huge profits.

The capital market never lacks wealth myths, especially in popular tracks like AI. But when making money becomes easier and easier to participate in, people often ignore how much price they have paid for this wealth game.

This article is from the WeChat official account "Silicon-based Observation Pro", written by Silicon-based Jun, and published with authorization from 36Kr.