Two U.S.-listed exchange-traded funds that track SK hynix (000660) shares with twice the daily leverage will be liquidated just three months after their launch. As a recent correction in South Korea's stock market has deepened uncertainty over the investment environment, U.S. asset managers are liquidating leveraged ETFs tied to Korean companies or withdrawing plans to launch new ones.
According to the U.S. Securities and Exchange Commission on the 25th, Tradr, the leveraged and inverse ETF brand of U.S. asset manager AXS Investments, has decided to delist two ETFs that use SK hynix as their underlying asset. The liquidation plans for both products received board approval on the 20th. The funds will trade for the last time on Nov. 5 on the BZX Exchange, operated by Cboe Global Markets, and are set to be liquidated around Nov. 12.
The funds are the Tradr 2X Long SK hynix Daily ETF (SKHA) and the Tradr 2X Short SK hynix Daily ETF (SKHN). Each tracks twice the daily return, long or inverse, of SK hynix's American depositary receipts listed on the Nasdaq. The two products will disappear from the market about three months after they began trading on July 28.
Assets under management have remained minimal since listing. According to ETF CHECK, the combined net asset value of the two products stood at about $1.3 million, or roughly 1.7 billion won. On the 23rd, the most recent trading day, SKHA closed at $19.26 and SKHN at $17.18, down 13.75% and 37.64% respectively from their opening prices on the first day of trading on July 28.
The premium on SK hynix's ADRs on the New York market has been widening. The ADRs closed at $137.02 on the 23rd. Given that 10 ADRs correspond to one common share listed in Seoul, and applying the won-dollar exchange rate, that works out to about 1.813 million won, roughly 42% above SK hynix's most recent regular-session close of 1.277 million won. The quota for converting Seoul-listed shares into ADRs has already been exhausted, limiting the scope for arbitrage to close the gap.
Tradr pointed to intensifying competition in the U.S. market as the reason for the liquidation. Matt Markiewicz, head of ETF product and capital markets at Tradr, said in response to an inquiry from Seoul Economic Daily that the delisting of the products was decided in light of the extremely fierce competition among related ETFs, adding that he does not believe there is any problem with SK hynix as the underlying asset.
Tradr has been winding down single-stock leveraged and inverse products one after another this month. It earlier decided to liquidate five ETFs tracking Coupang, Pony AI, NXP Semiconductors, NuScale Power and Tower Semiconductor. Including the SK hynix products, the firm has decided to liquidate seven ETFs this month alone.
Plans for additional leveraged ETFs tied to Korean companies have also fallen through. ProShares filed with the SEC on the 19th to withdraw the registrations of ProShares Ultra Hyundai Motor and ProShares Ultra Samsung Electro-Mechanics. Both products were designed to deliver twice the daily share price return of Hyundai Motor (005380) and Samsung Electro-Mechanics (009150), and their initial registration documents had been submitted in June.
With the correction in Korea's stock market continuing, some observers expect U.S. asset managers to shift their strategies for launching ETFs tied to Korean companies. An official in the asset management industry said U.S. managers moved quickly this year to list products using Korean stocks as underlying assets, but that growing market uncertainty could make business reviews for new launches and for maintaining existing products considerably more demanding.