'TQQQ' and 'SOXL', the Most Popular Leveraged ETFs in Korea – Why They’re Not for Long-Term Investing

Among domestic investors, leveraged ETFs are always a hot potato.
In particular, 'TQQQ' and 'SOXL' are prime examples: whenever the market seems to be falling, there’s a tendency for everyone to rush in and buy first and think later.

This phenomenon is closely tied to broader social changes. Sky-high real estate prices, relatively low initial capital requirements, and improved access to stock markets… all of this has led many people to turn to investment products that seem to offer high returns in a short period of time.

In this piece, we compare TQQQ and SOXL by walking through what each ETF looks like.

The reason TQQQ and SOXL charts show similar patterns is that both ETFs are heavily concentrated in technology stocks.

SOXL has tracked a semiconductor index from the outset, and the Nasdaq, which TQQQ tracks, is an exchange famous for listing many technology companies.
The market environment was another reason their patterns converged. Around the time TQQQ was listed, Apple was already racing at a frightening pace toward the number-one spot in market capitalization,

In 2012, when TQQQ and SOXL really began to move in tandem, the top 10 companies with the best performance were: Apple, ExxonMobil, Microsoft, IBM, Chevron, General Electric, Alphabet, Walmart, Berkshire Hathaway, and AT&T.

Nearly half of these were technology companies listed on the Nasdaq.

Even today, the top names in the Nasdaq 100 include: Apple, Nvidia, Microsoft, Amazon, Alphabet, Meta...
The fact that many Nasdaq-listed companies are tech stocks and that semiconductors remain one of the core pillars of modern technology is both why the two ETFs look similar and what makes investors agonize over which one to choose.

Chasing the eye-popping returns between the bottom and top of a leveraged ETF and holding it for a long time is, by design, a losing proposition.

Because leveraged ETFs are structured to track three times the daily return, there is a high chance that, over the long term, the actual return will diverge significantly from what you expected. This is called the leverage decay effect.

That is because leveraged ETFs are adjusted by a factor of 2–3x on a daily basis; they are not products that will deliver 2–3x returns over the long term.

Let’s walk through an example where the underlying index rises 10% today and then falls 10% tomorrow.

The underlying index returns to its original level of 100, but the leveraged ETF ends up with a loss. It may help to think of it not as holding three times the underlying asset, but as buying and selling it every day at three times the leverage.

For this reason, leveraged ETFs are not suitable for long-term investing.

If you want exposure to technology or semiconductors but are concerned about these structural issues, you might consider the following ETFs.