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 Fink runs a company that oversees more than $4 trillion in client
assets, including nearly $1 trillion in ETF assets.
"We'd never do one (a leveraged ETF)," Fink said at a Deutsche Bank
investment conference in New York. "They have a structural problem
that could blow up the whole industry one day."
Fink spoke during a conversation with Deutsche Bank co-CEO Anshu
Jain in a broader discussion about regulating financial companies.
ProShares, a leading leveraged ETF firm, disagreed with Fink's
remarks.
"Leveraged ETFs are well regulated, transparent products and there
is no credible evidence that they have any harmful effect on the
markets or our industry," said Tucker Hewes, a spokesman for
ProShares.
Leveraged ETFs account for 1.2 percent of the $2.5 trillion in
global ETF assets under management. At the end of April, there were
nearly 270 leveraged ETF funds with $30.3 billion in assets, said
Deborah Fuhr, managing partner of ETF research firm ETFGI LLP. A
leveraged ETF uses financial derivatives and debt to amplify the
returns of an underlying index. Some leveraged ETFs have become more
aggressive, ramping up risk and potential returns, as the ETF
industry gains popularity with individual and institutional
investors.
Leveraged ETFs have attracted $1.8 billion in net new assets during
the first four months of 2014, Fuhr said.
They are showing up more as buy-and-hold investments in the
portfolios of retail investors, as financial advisers grow more
comfortable recommending them, and first gained a foothold among
traders who wanted an investment vehicle to make fast and enhanced
bets on big index moves or the direction of gold prices, for example
Last year, when the Standard & Poor's 500 Index rose 32 percent, the
$348 million Direxion Daily S&P 500 Bull 3x Shares ETF <SPXL.P>
gained 118.9 percent, or nearly quadruple the S&P 500's gains.
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Last month, Direxion Funds launched two leveraged ETFs with three
times exposure to the daily direction of gold prices. Direxion Daily
Gold Bull 3X Shares ETF <GLDL.P>, for example, seeks 300 percent of
the daily performance of the Comex Gold Futures benchmark.
The industry's largest leveraged ETF is the ProShares UltraShort 20+
Year Treasury <TBT.P>, which has about $4 billion in assets.
Fink said he believes regulators should focus on the structure of
financial products.
"If you want to create a safer and sounder marketplace, it has to be
at the product level," Fink said.
U.S. Securities and Exchange Commission staffers have issued
warnings about leveraged ETFs, though no action has been taken to
curb their availability. Regulators say individual investors may not
realize that the investment products are designed to achieve their
performance objectives on a daily basis rather than over the long
term.
(Reporting By Tim McLaughlin; Editing by David Gregorio and Tom
Brown)
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