BlackRock's Fink jolts ETF business with 'blow up' warning

Fink, who runs the world's largest asset manager and ETF provider, said structural problems with leveraged ETFs have the potential to "blow up the whole industry one day." Sponsors of leveraged ETFs and related products, which make up only about $60 billion of global industry assets, called his remarks an exaggeration. Leveraged ETFs use derivatives and debt in an attempt to enhance returns - often by two or three times - that an investor would receive from putting money in stocks, bonds or other financial instruments. Fink, who was speaking at a Deutsche Bank conference in New York, drew parallels between the embedded leverage in some ETFs and two obscure Bear Stearns hedge funds that collapsed in 2007. A systemic risk could emerge from packaging inherently hard-to-trade securities, such as leveraged bank loans, into ETFs.

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