The Index Came Back — So Why Is My 3x ETF Still Down?

With Korea's market frozen, many investors looked to the U.S. — and roughly 6 trillion won flowed into leveraged ETFs tracking three times the return of U.S. semiconductor indices. But these products carry a trap the name never reveals: even when the index returns to where it started, your money may not.

What exactly does a 3x ETF triple?

One word decides everything here. What the product tracks is three times the daily return — not three times the return over your holding period. If the index rises 1% today, the ETF rises 3% today. That is the entire promise. Nothing guarantees the multiple still holds a week or a month later.

Here it is in numbers

Take an index that falls from 100 to 90 and then climbs back to 100. From the index's perspective, nothing happened — a 0% return. But what actually occurred was a 10% fall followed by an 11.1% rise, because getting from 90 back to 100 requires 11.1%.

A 3x ETF tracks each of those days at triple. Day one it takes -30%, three times the 10% drop, so 100 becomes 70. Day two it earns +33.3%, three times the 11.1% gain, so 70 becomes 93.3. The index is back at 100 while your money sits at 93.3. Over a stretch where seemingly nothing happened, 6.7% disappeared.

Why does this happen?

Because the fund resets its exposure every day — a mechanism called daily rebalancing. At each day's close, the ETF adjusts its position so tomorrow is again exactly 3x. The catch is that after a loss, that reset works off a smaller base. Earning 33.3% on 70 cannot get you back to 100. The rule that recovering a loss requires a larger percentage gain gets applied fresh every single day.

The favorable conditions are equally clear: a short period, one direction, sustained. In such a stretch, rebalancing works in your favor and can even beat 3x. The problem is that nobody knows in advance when that stretch will arrive. A market like this one — with the KOSPI 38.63% below its yearly high and direction unclear — is far from it.