AI Summary
5 min readIn early July 2024, the biggest market stories weren't about the Fed or geopolitics. They were coming out of Korea. Samsung had reported earnings, SK Hynix was about to list in the US, and Korean stocks were moving 5% a day. The reason, according to Barclays' Alex Altman, is a new class of financial products that have exploded in size: single-stock levered ETFs. These funds, which let retail investors bet two or three times the daily return of a single company, have grown so large that they are now mechanically driving the price action of the underlying shares themselves. As Altman put it, "you may not be interested in leverage, leverage is probably interested in you."
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What you'll learn
- 1 (01:20) **Korea's Levered ETFs Are the Week's Biggest Market Story** - Joe and Tracy set up the episode: Korean single-stock levered ETFs are driving unusual market moves, overshadowing macro events like Fed minutes and Iran tensions.
- 2 (03:56) **The "Terrifying" Growth of Levered ETF Notional** - Alex Altman (Alty) of Barclays explains the explosive growth in levered ETF assets under management (AUM).
- 3 (06:19) **The Mechanics: How Levered ETFs Create Forced Flows** - Altman breaks down the rebalancing math that turns levered ETFs into non-discretionary market movers.
- 4 (08:34) **How Levered ETFs Are Built: From SEC Approval to Bank Swaps** - The basic business of setting up a levered ETF, from regulatory approval to sourcing leverage.
- 5 (10:13) **Are Levered ETFs Squeezing Financing Rates?** - Altman debunks the idea that levered ETFs are the primary driver of rising equity financing costs.
- 6 (12:17) **Sourcing Leverage Through Options?** - A discussion on whether levered ETFs are turning to the options market for leverage due to scarce dealer balance sheet.
- 7 (16:15) **Korea vs. US: Retail Ownership and the "Tail Wagging the Dog"** - The difference in retail ownership between Korean and US levered ETFs and its implications.
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Show Notes
Retail participation in the stock market is booming. And of course the biggest story in markets is the AI trade, which has created an incredible amount of demand for chips and memory. These two broad themes have come together in the form of leveraged, single-stock ETFs. And while these products are popular in the US, the scale coming out of Korea is enormous. It's a good week to talk about this intersection, because some of the biggest stories of the week include Samsung's earnings and SK Hynix's new US listing. Barclays's Global Head of Equities Tactical Strategies Alexander Altmann has used the word “terrifying” to describe the amount of notional exposure coming from these levered ETFs. He explains to us why that is and we talk to him about why, in such a short period of time, the world of levered ETFs has gotten to be so large, with AUM increasing threefold in Asia alone. He also us gets into how he is thinking through risk management and how we as society — and retail investors in particular — got to be overexposed on equities and why that keeps him up at night.
Read: SK Hynix’s $26.5 Billion Listing Reopens Asia Route to US Market
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