[Edaily Reporter Park Soon-yeop] As single-stock leveraged exchange-traded funds (ETFs) based on the so-called “Samsung-Nex” have rapidly expanded in size, managing tracking error has emerged as a new challenge. This comes as single-stock leveraged ETFs have grown large enough to influence both the spot and futures markets, and as instances of these products trading at prices different from their net asset value (NAV) have become increasingly frequent.
According to the financial investment industry on the 16th, there have been a total of 44 disclosures regarding excessive tracking errors for single-stock leveraged and inverse ETFs since their listing on the 27th of last month. As trading was concentrated during the initial listing period and stock price volatility for #SamsungElectronics and #SKHynix increased, instances of a widening gap between the ETF’s market price and its NAV have continued.

The tracking error refers to the difference between an ETF’s market price and its NAV. While ETFs are fundamentally designed to trade at their NAV, actual market prices fluctuate based on intraday supply and demand. When orders are concentrated on one side or the order book is thin, investors face the risk of buying at a price higher than the ETF’s actual value or selling at a lower price.
A recent example is Korea Investment Trust Management’s “ACE SK Hynix Single-Stock Leverage” ETF. On the 9th, when the stock price of SK Hynix—the ETF’s underlying asset—was trending downward, this ETF actually closed sharply higher. Just before the market closed, during a time when liquidity providers (LPs) are not required to submit quotes, market-price buy orders flooded in, causing the ETF’s closing price to settle above its NAV.
This price discrepancy is also linked to increased volatility across the broader market. From the beginning of this month through that day, there were a total of 627 disclosures of excessive ETF tracking error, averaging over 60 per business day. This figure is approaching the monthly high of 688 recorded in March.
In particular, analysts note that the burden of managing tracking errors has increased as single-stock leveraged ETFs began trading in earnest amid this volatile market environment. Unlike index-based ETFs, single-stock leveraged ETFs track the daily return of a single stock by a factor of two. If the underlying asset fluctuates significantly during the trading session or orders are concentrated on one side, the likelihood of the ETF’s market price diverging from its NAV increases.
The burden also increases during the management process. Asset managers adjust their positions using stocks, futures, and swaps to maintain the leverage structure. As volatility rises, the burden of hedging and the costs of rebalancing increase, and the potential for price distortions grows during periods when the obligation to submit LP quotes is waived, such as immediately after the market opens and just before the market closes.
Financial regulators are also closely monitoring the situation. It is reported that authorities recently urged asset management company officials to conduct sophisticated LP operations to ensure there are no issues with the liquidity and tracking error management systems for single-stock leveraged ETFs. While these products were initially successful upon listing, regulators have determined that as trading volumes have grown, the post-listing management framework must also be refined.
However, industry experts explain that it is difficult to completely prevent the occurrence of price discrepancies. This is because the market price of an ETF fluctuates based on intraday supply and demand, while the NAV is calculated by factoring in management fees, futures and swap transaction costs, and the timing of dividend and interest payments. In particular, leveraged ETFs rebalance their positions daily to maintain their target leverage ratio, making price management more challenging during highly volatile market conditions.
Consequently, experts assess that the key lies in enabling investors to easily recognize tracking errors and avoid trading during high-risk periods. There are also calls to highlight products with high tracking errors more prominently on brokerage trading screens and to strengthen warnings for market orders placed just before the market closes.
An asset management industry official stated, “Immediately after the market opens and just before the market closes—when LPs are exempt from their obligation to submit quotes—liquidity decreases, which can widen the gap between the ETF’s market price and its NAV,” adding, “For leveraged ETFs, it is essential to check the tracking error and quote conditions before trading.”