Fink came out swinging against rival exchange-traded funds at a Bank of America conference, Businessweek reports. Specifically, Fink took aim at synthetic ETFs sold by Societe Generale’s Lyxor division:”‘If you buy a Lyxor product, you’re an unsecured creditor of SocGen.’ [….] Providers of synthetic ETFs should ‘tell the investor what they actually are. You’re getting a swap. You’re counter party to the issuer.'”
Synthetic ETFs are backed by derivatives instead of the actual securities being traded. BlackRock’s ETFs are “almost all” non-synthetic (or “physical”), Businessweek reports.
BlackRock has recently called for more robust regulation of synthetic ETFs; Fink drew a parallel between ETFs and the mortgage market.
Lyxor fired back that traditional ETFs “expose their holders to undisclosed levels of counterparty risk to typically undisclosed counterparties.”
A research director Businessweek spoke to compared the battle to “a street brawl for the soul of exchange-traded products.”