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Wednesday, November 16, 2011

Fink Slams Levered ETFs

News summary by MFWire's editors

Leveraged ETF fundsters unite! Larry Fink the chairman and CEO of BlackRock [see profile], the world's biggest purveyor of ETFs, dropped a few bombs on his leveraged ETF brethren in the opening round of what looks like a fight that will go the distance, the Wall Street Journal reports.

Fink said on CNBC that he's concerned about the level of disclosure in leveraged ETFs, which give investors hope of a stronger yield, and worries they could become the next mortgage-linked securities if not managed properly.

"We are surprised that (leveraged ETFs) are even approved, instruments that even retail can buy," he said on CNBC's Sqawk Box program.

He added that ETFs, which were designed to be very basic, are and now overlay "through the ingenuity of the Street into products that have leverage so you can get hyper returns, positive or negative... The question I have is 'do we want to have another incident?'"

His remarks seem to be aimed at the three major levered ETF players including Rydex [see profile], ProFund Advisors [see profile] and Direxion Shares ETF Trust.

Business Insider and ETF Trends also covered Fink's denouncement of the subsector.

Meanwhile, it;'s business as usual in the inflated world of levered ETFs. Direxion said it is ratcheting up the investment objectives of 10 leveraged funds, based on the recommendation of the fundsí advisor, Rafferty Asset Management, LLC [see profile]. Specifically, each fundís investment objective will look to generate 300 percent or -300 percent of the performance of its target index. The funds previously sought daily results of 200 percent or -200 percent. The changes will be effective December 1.

Want some rum with that punch, Larry? 

Edited by: Hung Tran

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