BlackRock criticised for ‘Orwellian doublethink’ over ETFs

The Edhec-Risk Institute has criticised BlackRock, the parent firm of iShares, for ‘Orwellian doublethink’ or ‘double-talk’ over its stance on labelling exchange traded funds.

Edhec has hit out at the ETF issuer for its seemingly contradictory views over how best to label ETFs, in response to the European and US regulators.

Edhec said: ‘Differences in naming conventions or markers, if any, should result from differences in economic exposures and payoff structures at the overall fund level.

‘An interesting little known fact is that this is the position defended by BlackRock vis-à-vis the SEC [Securities and Exchange Commission].’

Edhec added that BlackRock suggested to the SEC ‘confusion may exist regarding the appropriate naming convention for mutual funds employing derivatives as a primary investment strategy.…We therefore suggest that the Commission clarify that actual economic exposure through reference assets be used.’

However, although Edhec said naming an ETF based on its actual economic exposure is ‘perfectly sensible,’ it said ‘this is hard to reconcile with BlackRock’s European position’ as documented in its contribution to the ESMA consultation.

In this, BlackRock said: ‘It would be appropriate in our view for the ETF-identifier to clearly identify whether it is a synthetic or physical ETF, which can easily be established through the principal investment policy of the fund.’

Edhec said: ‘This may be a case of Orwellian doublethink, unless it is simply double-talk dictated by differences in competitive landscapes on each side of the Atlantic.’

Indeed, in the US, BlackRock distributes exchange traded notes (ETNs) despite CEO Laurence Fink's (pictured) views on the ‘consternation’ surrounding these products, especially in Europe.

A spokesperson for BlackRock said: 'We are looking at Edhec’s paper on ETFs and look forward to ESMA’s forthcoming consultation paper on new guidelines for the ETF industry.'