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THIS WEBSITE IS AIMED AT CLIENTS IN FINLAND WHO QUALIFY AS PROFESSIONAL CLIENTS OR PROFESSIONAL INVESTORS

This website is published by Lyxor International Asset Management (LIAM), a French asset management company approved by the French Financial Markets Authority (Autorité des Marchés Financiers, 17 place de la Bourse, 75082 Paris Cedex 02) under the UCITS (2009/65/EC) and AIFM (2011/31/EU) directives.

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A professional client for the purposes of the MiFID (2004/39/EC) and the AIFMD (2011/31/EU) as implemented in Finland is one of the following:

-         an entity required to be authorised or regulated to operate in the financial markets. The following list includes all authorised entities carrying out the characteristic activities of the entities mentioned, whether authorised by an EEA State or a third country and whether or not authorised by reference to a directive:

·            an investment firm, a credit institution, a fund management company, an alternative investment fund manager, a depositary;

·            a stock exchange, an options exchange, a clearing entity;

·            a central securities depository;

·            an insurance company, a pension insurance company, a pension fund;

·            an entity that deals exclusively on own account in financial derivatives for the sole purpose of hedging positions on derivatives markets or deals for the account of other members of those markets or makes prices for them and is guaranteed by clearing members of the same markets;

·            a business entity dealing in commodities and/or commodity derivatives on own account;

·            any other institutional investor;

 

 

-          a large undertaking, meeting two of the following size requirements according to the financial statements of the last preceding financial period:

 

·            balance sheet total of at least EUR 20,000,000

·            net turnover of at least EUR 40,000,000

·            own funds of at least EUR 2,000,000

 

-         the State of Finland, the State Treasury, the province of Åland, foreign national and regional governments as well as foreign public bodies managing public debt;

-         the European Central Bank, the Bank of Finland and similar foreign central banks as well as the International Monetary Fund, the World Bank and similar international associations and organisations;

-         institutional investors that, as their main field of activity, invest in financial instruments;

-         other clients that have in writing requested to be treated as a professional client and, after having received written information on the limited protection afforded to professional clients confirmed in writing their understanding of the same, provided that the investment firm has assessed that the client is capable of making independent investment decisions and understands the related risks and, furthermore, that the client meets at least two of the following criteria:

·            the client has carried out transactions, in significant size, on the relevant market at an average frequency of 10 per quarter over the previous four quarters;

·            the size of the client’s financial instrument portfolio exceeds EUR 500,000;

·            the client works or has worked in the financial sector for at least one year in a professional position, which requires knowledge of the transactions or services envisaged.

 

A professional investor for the purposes of the UCITS (2009/65/EC) as implemented in Finland is one of the following:

-         an entity required to be authorised or regulated to operate in the financial markets, as defined above under ‘professional client’;

-         a large undertaking, meeting the requirements set out above for professional clients

-         the State of Finland, the State Treasury, the province of Åland, foreign national and regional governments as well as foreign public bodies managing public debt;

-         the European Central Bank, the Bank of Finland and similar foreign central banks as well as the International Monetary Fund, the World Bank and similar international associations and organisations;

-         institutional investors that, as their main field of activity, invest in financial instruments;

-         other investors that have notified the fund management company, UCITS or its representative in writing that they, on the basis of their expertise and experience in investing activities, are professional investors, and meet at least two of the following criteria:

·            the investor has carried out transactions, in significant size, on the relevant market at an average frequency of 10 per quarter over the previous four quarters;

·            the size of the investor’s financial instrument portfolio exceeds EUR 500,000;

·            the investor works or has worked in the financial sector for at least one year in a professional position, which requires knowledge of the transactions or services envisaged.

 

The above definitions are only extracts and are as such not exhaustive. For further details please refer to the Finnish Investment Services Act (747/2012) and the Finnish Investment Funds Act (48/1999).

 

Marketing Restrictions and Implications

 

Lyxor UCITS compliant Exchange Traded Funds (Lyxor UCITS ETFs) referred to on this website are open ended mutual investment funds (i) established under French law and approved by the Autorité des Marchés Financiers (the French Financial Markets Authority), or (ii) established under Luxembourg law and approved by the Commission de Surveillance du Secteur Financier (the Luxembourg Financial Supervisory Committee). Most, if not all, of the protections provided by the Finnish regulatory system generally and for funds authorised in Finland do not apply to these exchange traded funds (ETFs). In particular, investors should note that holdings in this product will not be covered by the provisions of the Financial Services Compensation Scheme or by the Finnish Investors’ Compensation Fund.

 

This website is exclusively intended for persons who are not "US persons", as such term is defined in Regulation S or the US Securities Act 1933, as amended, and who are not physically present in the US. This website does not constitute an offer or an invitation to purchase any securities in the United States or in any other jurisdiction in which such offer or invitation is not authorised or to any person to whom it is unlawful to make such offer or solicitation. Potential users of this website are requested to inform themselves about and to observe any such restrictions.

 

Index Replication Process

 

Lyxor UCITS ETFs follow both physical and synthetic index replication process.

 

However, most Lyxor UCITS ETFs follow synthetic replication process. This consists of entering into a derivative transaction (a ‘Performance Swap’, as defined below) with a counterparty that provides complete and effective exposure to its benchmark index. Lyxor has adopted this methodology in order to minimise tracking error, optimise transaction costs and reduce operational risks.

 

A Performance Swap is a contractual agreement which is negotiated over-the-counter (OTC) between two parties: the Lyxor UCITS ETF and its counterparty. From a risk perspective, each Performance Swap ranks equally with other senior unsecured obligations of the counterparty, such as common bonds (i.e., same rights to payments). In the Performance Swap, the counterparty of the Lyxor UCITS ETF commits to pay the Lyxor UCITS ETF a variable return based on a pre-determined benchmark index, instead of a fixed stream of income (as in bonds). At the same time, the counterparty will receive from the Lyxor UCITS ETF the performance and any related revenues generated by the basket's assets (excluding the value of the Performance Swap) held by the Lyxor UCITS ETF. Information provided on individual ETFs includes data on the basket relating to the ETF and the percentage value of the basket represented by each asset. The information is relevant to the closing values on the date given. 

 

Investment Risks

 

The Lyxor UCITS ETFs described on this website are not suitable for everyone. Investors' capital is at risk. Investors should not deal in this product unless they understand, having obtained independent professional advice where necessary, its nature, terms and conditions, and the extent of their exposure to risk. The value of the product can go down as well as up and can be subject to volatility due to factors such as price changes in the underlying instrument and interest rates. If a fund is quoted in a different currency to the index, currency risks exist.

 

Prior to any investment in any Lyxor UCITS ETF, you should make your own appraisal of the risks from a financial, legal and tax perspective, without relying exclusively on the information provided by us. We recommend that you consult your own independent professional advisors (including legal, tax, financial or accounting advisors, as appropriate).

 

Specific Risks

 

·         Capital at Risk. ETFs are tracking instruments: Their risk profile is similar to a direct investment in the Benchmark Index. Investors’ capital is fully at risk and investors may not get back the amount originally invested. Investments are not covered by the provisions of the Financial Services Compensation Scheme (“FSCS”), the Finnish Investors’ Compensation Fund or any similar scheme.

·         Counterparty Risk. Investors may be exposed to risks resulting from the use of an OTC Swap with Societe Generale. Physical ETFs may have Counterparty Risk resulting from the use of a Securities Lending Programme.

·         Currency Risk. ETFs may be exposed to currency risk if the ETF or Benchmark Index holdings are denominated in a currency different to that of the Benchmark Index they are tracking. This means that exchange rate fluctuations could have a negative or positive effect on returns.

·         Replication Risk. ETFs are designed to replicate the performance of the Benchmark Index. Unexpected events relating to the constituents of the Benchmark Index may impact the Index provider’s ability to calculate the Benchmark Index, which may affect the ETF’s ability to replicate the Benchmark Index efficiently. This may create Tracking Error in the ETF.

·         Underlying Risk. The Benchmark Index of a Lyxor ETF may be complex and volatile. When investing in commodities, the Benchmark Index is calculated with reference to commodity futures contracts which can expose investors to risks related to the cost of carry and transportation. ETFs exposed to Emerging Markets carry a greater risk of potential loss than investment in Developed Markets as they are exposed to a wide range of unpredictable Emerging Market risks.

·         Liquidity Risk. On-exchange liquidity may be limited as a result of a suspension in the underlying market represented by the Benchmark Index tracked by the ETF; a failure in the systems of one of the relevant stock exchanges, Societe Generale or other Market Maker systems; or an abnormal trading situation or event. 

 

The securities can be neither offered in nor transferred to the United States.

 

Tax

 

Any statement in relation to tax, where made, is generic and non-exhaustive and is based on our understanding of the laws and practice in force as of the date of this document and is subject to any changes in law and practice and the interpretation and application thereof, which changes could be made with retroactive effect. Any such statement must not be construed as tax advice and must not be relied upon. The tax treatment of investments will, inter alia, depend on an individual’s circumstances. Investors must consult with an appropriate professional tax adviser to ascertain for themselves the taxation consequences of acquiring, holding and/or disposing of any investments mentioned on this website. 

Further information on the risk factors are available in the [Risk Warning – link to risk page] section of the website.

 

Any fund prospectus and supplements are available at www.lyxoretf.fi. Information given about the past performance of the funds is no guarantee of future performance. No investment decision should be taken without reading the fund prospectus and any fund supplement of the fund concerned.

 

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02 Jul 2018

What’s next for European equities: Energy or ennui?


For the last few months, investors have tended to glaze over when we’ve spoken to them about European markets. It’s as though they never really believed risk had been set aside. They seemed to be looking for a reason to direct money elsewhere. Since February, they’ve found plenty.  Is it time they changed their minds?


Massive outflows from European equities for the last three months (€m)

                                      chart 1

Source: Monthly data from 01/06/2017 to 01/06/2018 (Bloomberg, Lyxor). Past performance is no guide to future returns

Populism, politics & pitfalls

Events in Italy are the latest reminder to the EU that populism may have been down but it was never out. The “Contract for a government of change” – the deal under which the anti-establishment Five Star Movement and the far-right League parties will work together – is high on aspiration and low on detail. What is clear is that their spending ambitions and their stance on immigration are a challenge for EU mandarins. It’s a question of who’ll blink first. Meanwhile, the separatist situation in Catalonia, though quiet, remains unresolved and sentiment on Spanish markets has yet to recover from the rejection of Rajoy

Voting with their feet:                                                               

IBEX & MIB returns & flows (local currency)                               Combined YTD Outflows


chart 2

Source: Returns from Thomson Reuters Datastream & Lyxor International Asset Management as at 22 June 2018, in local currency. Flows data from 01/06/2017 to 01/06/2018, sourced from Bloomberg & Lyxor ETF Research Team. Past performance is no guide to future returns

At the same time, Brexit casts a long shadow. On the mainland, it may look like a domestic problem over the channel but to international investors it looks like the continent is splintering rather than drifting apart. Expect UK growth to remain under pressure and inflation prints to challenge BoE targets in the coming months.

Temporary troubles

The turmoil by the Tiber and the idiosyncratic troubles of some sectors like financials and exporters hampered European equities briefly, but they then rallied quite strongly before falling back again. Inflows resumed, albeit tentatively, but outflows are now back in force. So what’s next?

Major equity market returns YTD (total return, local currency)

                          Chart 3

Source: ThomsonReuters Datastream, MSCI, Lyxor AM International, data as at 22 June 2018

In our view, prospects for the euro area economy still look good, given domestic impetus. Companies are reporting labour and equipment constraints, but no slackening of demand. They are producing at full capacity, and corporate capex is increasing in most countries.

We therefore expect to see some evidence of a catch-up in the Q2 data and believe GDP should grow by 2% this year and a little less next year. The ECB still plans to turn the QE tap off by year end, as long as contagion risk from Italy is contained and real data displays some resilience.  

The bank has also confirmed it’s unlikely to raise interest rates until we’re through the summer of next year at least, keeping the euro and bund yields anchored for now. A weaker euro should support exports, inflation and, ultimately, the ECB’s exit stance. Some sector and country selectivity could prove rewarding in this environment.

Your economic zone needs you

To date, the eurozone’s consumers have contributed little to the economic recovery. As the job market strengthens, we expect them to play their part by spending more across the region. Signs of wage growth in some countries are to be welcomed. 


Digging deeper

There has long been a marked difference between the valuations of European markets and their US peers but the gap has narrowed. There may still be some limited upside from here, despite the politics, but the key catalysts (sales growth, margin recovery and so on) no longer have the energy they once did. 

Mind the valuations gap – price-to-book value vs. history (since Jan-75)


Chart 4

Source: Thomson Reuters Datastream, MSCI, Lyxor International Asset Management, data as at 31/05/2018







A more successful strategy may therefore involve digging a bit deeper. We’re still advocates of core markets like the CAC and DAX over peripheral peers like the FTSE MIB and IBEX because of stronger domestic growth, better political visibility and far better corporate balance sheets. The CAC in particular acts as a reasonable proxy for eurozone recovery. It has a decent mix of domestic and international exposures and positive long-term reforms are under way. Greek equities may offer some short-term opportunities as well with a form of debt relief now agreed. 

We favour pro-domestic, cyclical sectors like consumer discretionary or construction and materials because their earnings profiles should improve as the region recovers, household spending picks up and real estate prices rise. We are avoiding expensive defensive sectors with low earnings growth prospects, particularly consumer staples.  


Why choose Lyxor for Europe?

Whatever your view on Europe, we believe we have an investment to match. Our 60+ routes to the market include some of Europe’s lowest cost Core equity ETFs, with TERS from just 0.07%. Opportunity seekers can choose between some of the oldest and largest broad or single country equity exposures on the market or dig deeper into our 19-strong sector range – several of which rank amongst the best-performing and most liquid you can find. If regional recovery is front of mind, you could look to our MSCI EMU Small Cap ETF – the best performer in Europe – or single out one of our unique country-focused mid-cap funds.* 

Learn more about the Core

Lyxor’s Broad European Equity ETFs

Ticker: Bloomberg

UCITS ETF Name

Currency

TER

AUM (M)

Replication 

Method 

MSEU LN

Lyxor EURO STOXX 50 (DR) 

USD

0.20%

7,696.9 

Direct (Physical)

MSE FP

Lyxor EURO STOXX 50 (DR) 

EUR

0.20%

6,637.9 

Direct (Physical)

MSEX LN

Lyxor EURO STOXX 50 (DR) 

GBP

0.20%

5,854.3 

Direct (Physical)

MEUU LN

Lyxor MSCI Europe UCITS ETF 

USD

0.25%

2,138.4 

Indirect (Swap Based)

MEUD LN

Lyxor Core STOXX Europe 600 (DR)

GBP

0.07%

1,190.5

Direct (Physical)

EMU IM

Lyxor Core MSCI EMU (DR) 

EUR

0.12%

387.6

Direct (Physical)

MFED FP

Lyxor Core EURO STOXX 300 (DR) 

EUR

0.07%

367.5

Direct (Physical)

FOR PROFESSIONAL CLIENTS ONLY

All views and opinion:  Lyxor International Asset Management & Lyxor Cross Asset Research team as at 29 June 2018. 

*Efficiency data over one year as at 31/01/2018. Past performance is no guide to future returns. Efficiency data is based on the efficiency indicator created by Lyxor ‘s research department in 2013. It examines 3 components of performance: tracking error, liquidity and spread purchase/sale. Each peer group includes the relevant Lyxor ETF share-class and the 4 largest ETF share-classes issued by other providers, representing market-share of at least 5% on the relative index. ETF sizes are considered as an average of AUM levels observed over the relevant time period. Detailed methodology may be found in the paper ‘Measuring Performance of Exchange Traded Funds’ by Marlène Hassine and Thierry Roncalli. Statements refer to European ETF market. Past performance is no guide to future returns.

Risk Warning

This document is for the exclusive use of investors acting on their own account and categorized either as “Eligible Counterparties” or “Professional Clients” within the meaning of Markets in Financial Instruments Directive 2004/39/EC. These products comply with the UCITS Directive (2009/65/EC). Société Générale and Lyxor International Asset Management (LIAM) recommend that investors read carefully the “investment risks” section of the product’s documentation (prospectus and KIID). The prospectus and KIID are available free of charge on www.lyxoretf.com, and upon request to client-services-etf@lyxor.com.

The products mentioned are the object of market-making contracts, the purpose of which is to ensure the liquidity of the products on the London Stock Exchange, assuming normal market conditions and normally functioning computer systems. Units of a specific UCITS ETF managed by an asset manager and purchased on the secondary market cannot usually be sold directly back to the asset manager itself. Investors must buy and sell units on a secondary market with the assistance of an intermediary (e.g. a stockbroker) and may incur fees for doing so. In addition, investors may pay more than the current net asset value when buying units and may receive less than the current net asset value when selling them. Updated composition of the product’s investment portfolio is available on www.lyxoretf.com. In addition, the indicative net asset value is published on the Reuters and Bloomberg pages of the product, and might also be mentioned on the websites of the stock exchanges where the product is listed.

Prior to investing in the product, investors should seek independent financial, tax, accounting and legal advice. It is each investor’s responsibility to ascertain that it is authorised to subscribe, or invest into this product. This document is of a commercial nature and not of a regulatory nature. This material is of a commercial nature and not a regulatory nature. This document does not constitute an offer, or an invitation to make an offer, from Société Générale, Lyxor Asset Management (together with its affiliates, Lyxor AM) or any of their respective subsidiaries to purchase or sell the product referred to herein.

Lyxor International Asset Management (LIAM), société par actions simplifiée having its registered office at Tours Société Générale, 17 cours Valmy, 92800 Puteaux (France), 418 862 215 RCS Nanterre, is authorized and regulated by the Autorité des Marchés Financiers (AMF) under the UCITS Directive (2009/65/EU) and the AIFM Directive (2011/31/EU). LIAM is represented in the UK by Lyxor Asset Management UK LLP, which is authorized and regulated by the Financial Conduct Authority in the UK under Registration Number 435658. Société Générale is a French credit institution (bank) authorised by the Autorité de contrôle prudentiel et de résolution (the French Prudential Control Authority).

Research disclaimer

Lyxor International Asset Management (“LIAM”) or its employees may have or maintain business relationships with companies covered in its research reports. As a result, investors should be aware that LIAM and its employees may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Please see appendix at the end of this report for the analyst(s) certification(s), important disclosures and disclaimers. Alternatively, visit our global research disclosure website www.lyxoretf.com/compliance.

Conflicts of interest 

This research contains the views, opinions and recommendations of Lyxor International Asset Management (“LIAM”) Cross Asset and ETF research analysts and/or strategists. To the extent that this research contains trade ideas based on macro views of economic market conditions or relative value, it may differ from the fundamental Cross Asset and ETF Research opinions and recommendations contained in Cross Asset and ETF Research sector or company research reports and from the views and opinions of other departments of LIAM and its affiliates. Lyxor Cross Asset and ETF research analysts and/or strategists routinely consult with LIAM sales and portfolio management personnel regarding market information including, but not limited to, pricing, spread levels and trading activity of ETFs tracking equity, fixed income and commodity indices. Trading desks may trade, or have traded, as principal on the basis of the research analyst(s) views and reports. Lyxor has mandatory research policies and procedures that are reasonably designed to (i) ensure that purported facts in research reports are based on reliable information and (ii) to prevent improper selective or tiered dissemination of research reports. In addition, research analysts receive compensation based, in part, on the quality and accuracy of their analysis, client feedback, competitive factors and LIAM’s total revenues including revenues from management fees and investment advisory fees and distribution fees.

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