A growing number of investors from the United States and South Korea are using leveraged ETFs for long-term investing, a significant departure from the products' original purpose of same-day trading. In the US, Research Affiliates founder Rob Arnott shorts both bullish and bearish leveraged ETFs, profiting from the characteristics generated by their daily rebalancing mechanisms rather than betting on market direction. In South Korea, the epicenter of the leveraged ETF boom, former dentist Song Wonjun says he achieved retirement at age 44 through these instruments. He has built leveraged ETFs into the core of a long-term investment strategy and shares this method with hundreds of thousands of online followers.
These products have evolved into investment tools that go beyond their original design. Intended to amplify single-day returns, they are now increasingly used by investors as long-term wealth-building vehicles, social media investment trends, and even niche arbitrage trading tools. The recent market volatility in South Korea, triggered by the artificial intelligence boom, has impacted leveraged chip ETFs and major tech stocks like SK Hynix and Samsung Electronics, once again thrusting leveraged ETFs into the market spotlight. Christian Magoon, CEO of Amplify ETFs, stated, "Leveraged ETFs are a powerful investment tool that can both help investors enhance portfolio performance and cause significant losses to a portfolio."
This phenomenon is particularly noteworthy as it occurs against a backdrop of persistent capital outflows from leveraged ETFs this year. However, years of continuous product launches have significantly broadened the strategic options available to professional investors. According to data compiled by industry research, a wave of product launches since 2024 has pushed the global leveraged ETF asset scale past the $200 billion mark for the first time. The emergence of new products, such as single-stock leveraged ETFs, country-specific ETFs, and sector ETFs, has also created more opportunities for traders to experiment with different strategies.
Unlike traditional ETFs, which are often used as long-term asset allocation tools, leveraged ETFs were originally designed for short-term trading to amplify the daily gains or losses of an underlying index. As these products have gained popularity, investors have continuously discovered more compelling uses, giving leveraged ETFs a new identity. Market attention on leveraged ETFs is precisely because the current market environment is where these products can be most effective. Sharp fluctuations in AI stocks, semiconductor stocks, and other momentum-driven trading targets have prompted investors to return to these products designed to amplify single-day returns. At the same time, it has rekindled interest in a strategy that does not bet on market direction but instead profits from the operational mechanisms of the leveraged ETFs themselves.
One of the most well-known practitioners of the "double short" strategy is Arnott. As a pioneer of the Smart Beta investment philosophy, Arnott, in addition to managing institutional assets, runs a personal investment account of about $1 million he calls a "toy portfolio," with most of the funds dedicated to a special strategy known as "double shorting." Instead of betting on stocks rising or falling, Arnott simultaneously shorts both the bullish and bearish products within a group of leveraged ETFs. This strategy attempts to capture the byproduct of the leveraged ETFs' daily rebalancing mechanism. When the market fluctuates sharply without a clear trend, these ETFs must constantly rebalance to maintain their set leverage multiples, a process that gradually erodes the returns of both bullish and bearish leveraged ETFs. Traders willing to bear the cost of borrowing shares attempt to profit from this value erosion by shorting both types of ETFs simultaneously. Arnott commented, "It's like watching grass grow slowly. But it's also a pretty interesting little thing."
While Arnott is an experienced investor, this strategy is by no means foolproof. It performs best in a range-bound, oscillating market rather than one that is consistently rising or falling. Additionally, borrowing costs can eat into profits, timing is crucial, and positions often require active management. Jose Carlos Gonzales, CEO of Leverage Shares, remarked, "These products are designed for intraday holding." He added, "If you hold these products for the long term, the daily rebalancing mechanism will actually work against the investor." As more investors pay attention to Arnott's strategy, related trading costs have also risen significantly.
Despite the complexity of this strategy, an increasing number of people are trying it, with participants expanding from academia and quantitative investment institutions to retail investors, particularly in South Korea. When Song Wonjun first encountered leveraged ETFs during the pandemic, the advice was simple: stay away. These products were considered high-risk, structurally complex, and designed for short-term trading. Song, then a dentist in Seoul looking to accelerate his wealth accumulation, decided to research them himself. This investor, known online as "Laofus," ultimately concluded that the warnings about leveraged ETFs were oversimplified. He stated that, rather than using leveraged ETFs as short-term trading tools, he devised a long-term investment strategy of gradually building positions over months or even years through continuous buying and rebalancing. Four years later, Song says he has earned enough from this strategy to retire from his dental practice. This concept has attracted hundreds of thousands of followers who tune in to his online lessons at 6:00 AM daily to learn his "infinite buying" and "value rebalancing" strategies.
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