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A professional client is a client that is either a per se professional client or an elective professional client  (Note article 4 (1) 12 of Mifid )

 

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– 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:

  • a credit institution
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  • a body corporate (including a limited liability partnership) which has (or any of whose holding companies or subsidiaries has) called up share capital of at least £10 million (or its equivalent in any other currency at the relevant time)
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The above definition is only an extract and is not exhaustive. For further details please refer to the Glossary section of the FCA Handbook: https://www.handbook.fca.org.uk/handbook/glossary/

 

 

Lyxor and Lyxor ETF are names used by Lyxor Asset Management UK LLP to promote the products of Lyxor International Asset Management. Although information contained herein is from sources believed to be reliable, Lyxor UK makes no representation or warranty regarding the accuracy af any information. Any reproduction, disclosure or dissemination of these materials is prohibited. This site is maintained by Lyxor UK, SG House, 41 Towar Hill, London EC3N 4SG.

 

 

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 the French law and approved by the Autorité des Marchés Financiers (the French Financial Markets Authority), or (ii) established under the 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 UK regulatory system generally and for UK authorised funds 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 any similar scheme in France.

 

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”), 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.co.uk. Information given about the past performance of the funds is no guarantee of future performance. No investment decision should be taken without reading the Legal Documents relating to the particuler Exchange Traded Fund concerned. A copy of the Legal Documents may be obtained from Lyxor UK at SG House, 41 Tower Hill, London EC3N 4SG upon request. 

 

Although the content of the website is based upon information that Lyxor UK consider reliable or comes from sources that Lyxor UK consider reliable, Lyxor UK has not verified such information. Lyxor UK make no representation or warranty as to the accuracy, completeness or adequacy of any information.  Any reproduction, disclosure or dissemination of the materials available on the website is prohibited.

 

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01 Oct 2020

Climate action in France, the UK and China

Between wildfires raging in Australia at the start of the year, and the news in August that Greenland’s ice sheet may have melted beyond the point of no return according to an Ohio State University study, the climate emergency shows no signs of abating.

International efforts to tackle climate change – notably the seminal Paris Agreement in 2015 committing 195 countries to decrease their carbon emissions, the ambitious EU Action Plan on Sustainable Finance, and the European Green Deal – will be key if we are to turn the tide on global warming.

But international coordination can only go so far without concerted country-level contributions. Here we look at three examples of how bottom-up climate action will also play a part to help shift the needle: France on the frontline, encouraging action in the UK, and the environmental elephant in the room – China.

France

flag france

France was the first country in the world to define a clear roadmap to fight climate change through carbon reporting.

Article 173-VI of the Law on Energy Transition for Green Growth, which came into effect in January 2016, covers ambitious targets for greenhouse gas (GHG) emissions reduction, energy consumption and share of fossil fuels versus renewables 1. It imposes mandatory carbon disclosures for listed companies and forces asset owners and investment managers to report their portfolios’ carbon footprint.

The law was introduced on a “comply or explain” basis, in which the regulator lays out a code, and a company can either comply, or explain publicly why they do not. As well as reporting climate-related risks, institutional investors must also report on how they integrate broader ESG metrics into their investment policies 2.


“Article 173-VI is a good example of the way we can change the rules of the game. In September 2014, private investors made the commitment before the UN to carry out better analysis and better reporting of their climate risk exposure […] to make the switch from a purely voluntary approach to the scale of action required by the climate challenge, policymakers had to transform the experiment by mainstreaming this new requirement.”

Pascal Canfin, former CEO of WWF France

​October 2016


​The United Kingdom

flag france

The Bank of England is taking centre stage on climate finance in the UK, thanks in part to the early efforts of former BoE governor Mark Carney.

Carney understood that climate change is a financial stability issue and should therefore be a high priority for any central bank. In a 2018 BoE review entitled ‘Transition in thinking: The impact of climate change on the UK banking sector’ 3, he highlighted the shift in perception of climate change from one of reputational risk, to one of core financial and strategic risk.

“A question for every company, every financial institution, every asset manager, pension fund or insurer: what’s your plan? Four to five years ago, only leading institutions had begun to think about these issues and could report on them. Now $120tn worth of balance sheets of banks and asset managers are wanting this disclosure [of investments in fossil fuels]. But it’s not moving fast enough.”

Mark Carney, former BoE Governor

December 2019


Although Carney has left the BoE (and is now the UN’s Special Envoy on Climate Action and Finance), the Bank still has another vocal champion of climate action: Sarah Breeden. Breeden heads up supervision of UK banks, building societies and credit unions, and is the bank’s executive sponsor for work on improving the financial system’s resilience to climate change.

“The economy and the financial system appear to me to be like super-tankers rather than high-speed catamarans in the America’s Cup. To change course, therefore, we need early action, a sustained effort and a recognition that it is better to be roughly right now, not precisely right when it is too late.”

Sarah Breeden, Executive Director, Bank of England

April 2019


​Another interesting UK development is the proposed shake up of the £1.6 trillion pensions market. Specifically, the Pensions Climate Risk Industry Group (PCRIG) is proposing an amendment to the Pension Schemes Bill, requiring climate change risk governance and Task Force on Climate-related Financial Disclosures (TCFD) reporting for pensions trustees. This is encouraging, as the TCFD framework is seen by many as the gold standard for corporate disclosures on climate-related financial risk.

China

flag france

As the world largest emitter of greenhouse gases, accounting for approximately a quarter of the world total, China’s role in the transition will be critical. Currently, China’s Nationally Determined Contribution (NDC) –the specific climate targets required by the Paris Agreement to achieve its goals – is rated as “highly insufficient” (as at December 2019), meaning the country is falling behind on its Paris commitments to a low-carbon transition.

However, China’s current domestic policies point to an improving trajectory, which could lead to a mere “insufficient” rating. That’s still a long way off full 1.5°C alignment, but the desire and ambition for emissions reduction is still alive.

China is rather ironically both the biggest coal consumer in the world, and the largest clean energy producer. Coal accounted for 66% of China’s electricity output in 2019, down from a peak of  81% in 2007.4 The share of coal in the installed power generation capacity in China which is currently 58%, is planned to be reduced to 32% in 2040 under the new policies.5

So, the choices the country makes domestically and internationally with respect to the financing of brown and green energy sectors will make a noticeable difference to global decarbonisation and a 1.5°C scenario.

On 22 September 2020, China’s President Xi announced that China will aim for carbon neutrality by 2060 – a move widely interpreted as a significant move on climate change, given China’s high emissions and longstanding view of itself as an emerging economy that could not afford to divest from fossil fuels.

“The Paris Agreement on climate change charts the course for the world to transition to green and low-carbon development. It outlines the minimum steps to be taken to protect the Earth, our shared homeland, and all countries must take decisive steps to honour this Agreement. China will scale up its Intended Nationally Determined Contributions by adopting more vigorous policies and measures.”

President Xi Jinping

September 2020

(China Ministry of Foreign Affairs translation)


​Asset owners also doing their part

Even ahead of sweeping new developments in European climate benchmark regulation, we’re encouraged to see major commitments from asset owners and pension funds to decarbonise their holdings with low carbon indices and mandates. To name a few:6

  • UK: HSBC Bank UK Pension Scheme, £3.5bn
  • Denmark: PenSam, €4.8bn
  • France: FRR, €2.5bn
  • Sweden: AP4 (fourth national pension fund), $3.2bn
  • United States: CalSTRS, $2.5bn
  • New Zealand: NZ Super Fund (sovereign wealth fund), $10bn

Climate finance will play a powerful role in the fight against climate change. Together, we can make it happen.

Sign up to learn more about the climate emergency and the role of investors in our Climate Investing Virtual Masterclass on 13 October

Explore our range of Climate Transition ETFs, designed to align with the Paris Agreement’s most ambitious goal – to limit global warming to 1.5°C

https://www.unpri.org/climate-change/french-energy-transition-law-global-investor-briefing-on-article-173/295.article

2 https://www.frenchsif.org/isr-esg/wp-content/uploads/Understanding_article173-French_SIF_Handbook.pdf

3 https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/report/transition-in-thinking-the-impact-of-climate-change-on-the-uk-banking-sector.pdf

4 https://energypost.eu/will-china-build-more-coal-to-stimulate-the-economy/

5 International Energy Agency

6 Sources: IPE.com, MSCI.com, calstrs.com,irmagazine.com, pionline.com

Risk Warning

This document is for the exclusive use of investors acting on their own account and categorised either as “Eligible Counterparties” or “Professional Clients” within the meaning of Markets in Financial Instruments Directive 2014/65/EU. 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.

Except for the United-Kingdom, where this communication is issued 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, this communication is issued by Lyxor International Asset Management (LIAM), a French management company authorized by the Autorité des marchés financiers and placed under the regulations of the UCITS (2014/91/EU) and AIFM (2011/61/EU) Directives. Société Générale is a French credit institution (bank) authorised by the Autorité de contrôle prudentiel et de résolution (the French Prudential Control Authority).

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.

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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