A 1,012% One Year Return Could Not Protect KORU From Its Own Structure

"KORU fell more than three times as much, down 27.83%, compared with EWY's 8.66%. This is volatility decay in action. Because KORU resets its 3x exposure daily, it must sell into falling markets and buy into rising ones to maintain its leverage ratio. In a choppy environment, that mechanical rebalancing compounds losses beyond what simple math would predict."

"South Korea is a major oil importer, and WTI crude has climbed 10.3% over the past month to $76.29 per barrel, sitting at the 96th percentile of its 12-month range. However, rising energy costs are pressuring Korean consumers and corporate margins, weighing on the KOSPI."

"High-volatility environments are precisely where leveraged ETFs bleed the most, regardless of the underlying's direction. The VIX tells the rest of the story. At 23.57 and sitting in the 87th percentile of its 12-month range, fear is elevated, rising 35.1% in a single month."

KORU, a 3x leveraged South Korea ETF, dropped 26% in one week despite maintaining a 135% year-to-date gain. The decline resulted from two factors: fundamental weakness in South Korea driven by rising oil prices pressuring consumers and corporate margins, and volatility decay from the fund's daily rebalancing mechanism. The underlying EWY fell 8.66%, but KORU fell 27.83%, demonstrating how leveraged ETFs amplify losses in choppy markets. Elevated VIX levels at the 87th percentile exacerbated these losses. Retail investor sentiment shifted from bullish to neutral throughout the week as losses mounted, reflecting uncertainty among momentum-driven investors unfamiliar with leverage decay mechanics.

Read at 24/7 Wall St.