"10 Million Won Grows to 2.18 Billion"... 'Father of ETFs' Recommends This Stock for Grandchildren [KOSPI 10,000 Era]

Exclusive Interview with Paek Jaegyu, CEO of Korea Investment Trust Management

"AI Is a Megatrend... Don't Be Swayed by Short-Term Fluctuations"

"Single-Stock Leveraged ETFs Are Risky as Principal Erodes"

"Don't Watch the Market Too C

Paik Jaegyu, CEO of Korea Investment Management, is being interviewed by The Asia Business Daily on the 21st at Korea Investment Management in Yeouido, Seoul. Photo by Kang Jinhyung

"The artificial intelligence (AI) theme currently leading the market is a megatrend that will continue for the next 20 to 30 years. Rather than reacting to short-term fluctuations, you should trust in this grand direction and invest your time."

Paik Jaegyu, CEO of Korea Investment Management, known as the "father of exchange-traded funds (ETF)" in Korea, analyzed the current AI stock market boom from a historical perspective during an interview with The Asia Business Daily on the 21st, emphasizing the importance of long-term investing.

Paik has been called the father of ETFs in Korea since introducing them domestically. While working at Samsung Asset Management in 2002, he launched the nation's first ETF product, laying the foundation for Korea's ETF market, which has grown to hundreds of trillions of won. He continued to pioneer the market by developing innovative products such as leveraged and inverse ETFs one after another.

Given this background, Paik is sounding the alarm about the recent transformation of the market into a short-term speculative arena. He urged individual investors to shift toward healthy long-term investing and benefit from the compounding effect within the major AI trend.

Paik advised not to be swayed by short-term volatility and to pursue long-term investment in the AI megatrend. He forecasts that, just as past revolutions like the steam engine (railroads), electricity (manufacturing), and the internet (platforms) led the global industry, AI will do the same for the next 20 to 30 years. He said, "Historically, when a new technology emerges, the companies that adopt it have led the creation of new wealth," and added, "AI has reached an explosive phase after over a decade of preparation following the internet revolution, and this will likely last another 20 to 30 years." He went on to say, "When a new technology arrives, you need to focus on the infrastructure supporting it as well as the big tech companies that make money utilizing that technology." He emphasized, "In the current AI era, the key infrastructure consists of data centers, electricity, and semiconductors."

He also dismissed concerns voiced by some about a "semiconductor peak-out" (the idea that the cycle has peaked and will decline). Paik explained, "Unlike railways, which, once built, could last for 100 or even 200 years and after which demand for steel diminished, semiconductors are entirely different." He continued, "Semiconductors wear out after more than three years of use, so they must be continuously replaced with higher-performing products. For this reason, the semiconductor infrastructure ecosystem cannot end as a one-off, and is destined to continue explosive growth."

Accordingly, Paik suggested that global long-term investment in the four semiconductor value chains—memory (Samsung Electronics and SK hynix), design (NVIDIA), foundry (semiconductor contract manufacturing—TSMC), and equipment (ASML)—remains valid.

Paik also highlighted the risks of single-stock leveraged ETFs, which have become a hot topic in the market recently. He stressed that investors must understand how leveraged ETFs can erode principal as the prices of the underlying asset fluctuate. He explained, "Let's say the underlying asset rises 25% and then falls 20%—you're back where you started, but with a 2x leveraged product, a 50% rise followed by a 40% fall will reduce your principal from 100 to 90. Even if the underlying asset recovers, severe volatility can only 'melt away' investors' assets."

Paik Jae-kyu, CEO of Korea Investment Management, is being interviewed by The Asia Business Daily on the 21st at Korea Investment Management in Yeouido, Seoul. Photo by Jinhyung Kang

Paik also explained, with specific numbers, the structural mechanism by which leveraged ETFs increase market-wide volatility. To match the 2x daily return, asset managers must adjust positions every day just before market close (between 2:30 p.m. and 3:30 p.m.). Paik said, "For a leveraged ETF with 10 trillion won in assets under management (AUM), you need positions totaling 20 trillion won—10 trillion won in stocks and 10 trillion won in futures—to maintain 2x exposure. If the market rises by 10%, total assets become 22 trillion won, net assets rise to 12 trillion won, and you need a 24 trillion won position the next day, so you have to buy an additional 2 trillion won in futures." Conversely, if the market declines 10%, total assets will drop to 18 trillion won and net assets to 8 trillion won, so you need a 16 trillion won position the next day and must sell 2 trillion won worth of futures in the market. Paik said, "Because you have to buy more when the market is up and sell more when it is down, leveraged ETFs inevitably amplify market volatility."

Throughout the interview, Paik consistently urged individual investors to invest in "direction" and "time." Once the clear direction of future growth (AI) has been identified, he stressed that investors should trust in the power of time—in other words, the compounding effect—and wait.

He remarked, "I always tell my friends that when their grandchildren are born, they should just buy 10 million won worth of Nasdaq 100 shares for them as a retirement guarantee. Assuming a 15% average annual return, after 55 years until retirement, that amount becomes 2,180 times—10 million won turns into 2.18 billion won. If you extend the retirement period to 60 years, it becomes 4,300 times. Just a five-year difference leads to a difference of 2,000 times," he said. Paik added, "Five years wasted buying and selling results in a 2,000-fold difference in profit later. Don't waste your time or money chasing leverage."

Finally, Paik advised investors, "When volatility is high, don't get too close to the ups and downs of the market—keep your distance. If you want to do long-term investing, it's best not to watch the market too closely."

This content was produced with the assistance of AI translation services.