'Street Brawl'
"The European market has turned into a street brawl for the soul of exchange-traded products," Dave Nadig, director of research at San Francisco-based ETF research firm Index Universe, said in a telephone interview.
Nadig said that while Fink had a "fair point" to make about synthetic funds, "there's a self-serving component to that because BlackRock's product line happens to match up with the most favorable interpretation of his argument."
In the U.S., synthetic ETFs are largely limited to funds that use leverage to amplify returns or obtain returns that move in the opposite direction of a chosen index. Some commodity-based ETFs also use futures contracts to generate their return. The Securities and Exchange Commission suspended approvals for new derivative-based ETFs in March 2010.
Fink reiterated his criticism of leveraged and inverse ETFs, saying he was surprised that some were approved by U.S. regulators. He compared leveraged ETFs to the financial engineering that ultimately lead to the collapse of the U.S. mortgage market in the subprime crisis.
'Morph Into Monster'
"I do believe we have some responsibility for making sure that the market does not morph itself, the same way when I started in the mortgage market 35 years ago, watching a great market morph into a monster," Fink said at the conference.
BlackRock published a paper Oct. 5 calling for clearer labeling for ETFs to help investors better understand what they are purchasing. It proposed to U.S. lawmakers on Oct. 19 that derivative-based products be banned from calling themselves ETFs.
Fink's comments about Lyxor refer to the fact that its funds contract with the Paris-based parent company Societe Generale for the total return swaps that generate their return. If Societe Generale were to fail, the funds' would generate no return.
"There are obviously a lot of stresses with banks in Europe," Fink said, adding he wasn't suggesting that SocGen is an example of such a bank.