BlackRock CEO Larry Fink was wrong when he slammed leveraged exchange-traded funds, Luciano Siracusano, chief investment strategist at Wisdom Tree Investments, told CNBC Thursday. In fact, he believes they can be very useful when used properly.
"They're actually a useful tool for short-term traders who are ... careful about how they use them."
The key term is short-term, he emphasized, because the funds will decay over time if they are leveraged.
"Once you introduce leverage and you reset daily, the path of the direction of the returns impacts the long-term return. So it's not unusual for a lot of these ETFs to lose value cumulatively over time," he said.
On Wednesday, BlackRock's Larry Fink said leveraged ETFs "have a structural problem that could blow up the whole industry."
While most ETFs track indexes, leveraged ETFs look to deliver multiples of the performance of the index they track.
However, Siracusano said leveraged ETFs are "only a small spec of the total assets out there," making up only 2 percent of $2.7 trillion in global ETF assets.
"Globally, if you are concerned about derivatives, the place to start the additional regulation is not with the ETFs," he added. "It's with the broader industry, particularly the systemically important financial institutions where these derivatives are used in a much broader scale."
Siracusano said there are specific risks involved, so the funds need to be monitored. But certain investors who have a "level of sophistication" can make money.
"It uses less capital, and you can maximize a move in the market. That's the purpose of the leverage. The short ones that often are in leverage give you a way to get inverse movement," he said.
"If the S&P 500 goes down and you were short the S&P in one of these funds, you'd have something to offset the downward movement. You'd actually have a hedge on your equity movement to the downside."
-By CNBC's Michelle Fox. Reuters contributed to this report.