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THIS WEBSITE IS AIMED AT PROFESSIONAL CLIENTS IN THE UK

The information on this website is published in the UK by Lyxor Asset Management UK LLP (Lyxor UK), which is authorized by Financial Conduct Authority in the UK, under FCA Registration Number 435658.

 

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This website is subject to French law and English Law

 

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 )

 

A professional client 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:

  • a credit institution
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– in relation to MiFID or equivalent third country business, a large undertaking, meeting two of the following size requirements on a company basis:

  • balance sheet total of EUR 20,000,000
  • net turnover of EUR 40,000,000
  • own funds of EUR 2,000,000

– in relation to business that is neither MiFID or equivalent third country business, a large undertaking meeting either of the following conditions:

  • 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)
  • a large undertaking that meets (or any of whose holding companies or subsidiaries meets) two of the following tests: (i) a balance sheet total of EUR 12,500,000; (ii) a net turnover of EUR 25,000,000; (iii) an average number of employees during the year of 250
  • a national or regional government, a public body that manages public debt, a central bank, an international or supranational institution (such as the World Bank, the IMF, the ECP, the EIB) or another similar international organisation.
  • another institutional investor whose main activity is to invest in financial instruments (in relation to the firm's MiFID or equivalent third country business) or designated investments (in relation to the firm's other business). This includes entities dedicated to the securitisation of assets or other financing transactions.

 

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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18 Mar 2021

Climate podcast: a degree of change makes all the difference



More investors than ever want their financial choices to have meaning – to grow their wealth, but also contribute to some of humanity’s biggest challenges. Led by emerging science on climate change, they have been leading a boom in climate-action investments.

Lyxor was delighted to recently discuss how investors can help fight climate change in an audio documentary with Citywire. Alongside experts from the Climate Bonds Initiative and S&P Dow Jones Indices, we discussed the urgency of global warming, improvements to carbon disclosure, and the global initiatives that can help investors make informed climate decisions.

Below are a few edited highlights from the audio documentary, which you can listen to in full here. 

Manuel Adamini, former Head of Investor Engagement at the Climate Bonds Initiative, started by explaining the emergency of global warming and the important role that investors have to play.

Citywire: Manuel, we hear that Earth risks heating up to dangerous levels. What could an apparently small rise in global warming of 1.5 degrees mean for the planet? And how would that compare to, say, 2 degrees?

Manuel: One degree or two degrees might not sound like very much. But we have to keep in mind that those tiny changes mean an awful lot on a planetary scale. In the last ice age – when the world was dramatically different, and most parts of Europe were under thick ice cover – the sea level was 20 metres lower because there was so much ice. Yet the global average temperature was just five and a half degrees lower than it is now.

You can imagine that a difference of one degree, on that scale to five and a half, makes an awful lot of a difference. We already have about one degree of global warming on the planet as we speak today. 

Citywire: What’s the role of investors in this scenario?

Manuel: The role of investors is to divest from a future we do not want and to invest in a future that we do want.  If we continue on our current path, depending on what predictions you’re taking, science tells us that we’ll see about three to four degrees of average global warming towards the end of the century.  Let’s not forget this global warming event is average global warming, so it will be much lower in the oceans and much higher on land, where we live. The planet would become uninhabitable.

As we know many of the technologies that we must get rid of, the message for investors is just “put your money into the right things”. One, no new fossil fuels. Two, phase out coal as quickly as you can. Three, no further deforestation or peatland conversion and four, have clear greenhouse gas policies around those things and report the impact that you’re having.  It’s not that complicated.

Regulators around the world have been taking steps to encourage investors to finance green projects and use common benchmarks. François Millet, Head of ESG, Strategy and Innovation for Lyxor gave an overview of the new regulation in the EU…

François: The European regulation is a very ambitious plan.  It started in 2018 with an Action Plan for Financing Sustainable Growth. It’s continuing with the European Green Deal and the recovery plan, creating a whole ecosystem of policies. These are being watched worldwide, because what is currently achieved at European level for defining the taxonomy of green projects and assets will benefit everyone. 

This regulation includes the launch of new benchmarks for investments and new benchmark regulation, which is now entering into force. There is an obligation for fund managers to improve their disclosure on sustainable products and, of course, this so-called taxonomy that will be at the centre stage of the whole process.  This regulation is willing to push investors to reallocate capital aggressively towards the companies which are the most successful in decarbonising their activity.

Citywire: What is EU benchmark regulation trying to achieve?

François: The benchmark regulation is all about having a wakeup call for investors by raising their attention on the fact that they are, today, invested in portfolios and indices that are on a trajectory of global temperature warming which is somewhere between four degrees and six degrees. This consists of pushing index administrators to disclose whether or not their current benchmarks are following a decarbonisation trajectory or are aligned with the most ambitious goals of the Paris agreement, which at the lowest end is 1.5 degrees with no or limited overshoot. 

There is a very complementary effect between forcing index administrators to improve disclosure on the existing benchmark and providing a response, an alternative to that, which are the EU benchmarks with different levels of ambition in terms of immediate reduction of the carbon intensity. The essential part of this regulation for indexes is to force investors to continue going forward to set their portfolios on a decarbonisation trajectory of 7% per year, which is a scenario that has been chosen by a number of major investors, worldwide and the European Union and now, 120 countries.

Jaspreet Duhra, Head of EMEA ESG Indices at S&P Dow Jones Indices, explained how the benchmark regulation works, and why it is so important…

Jaspreet: The EU benchmark regulation is part of a broader action plan from the EU. The EU wants to encourage more money to flow into sustainable finance and they’ve undertaken a number of different initiatives to try and make that happen and this benchmark regulation is one part of that.  So, they’ve convened a technical expert group and they’ve come up with recommendations, more broadly, on green finance, but as part of that, they’ve come up with these two benchmark labels: Paris Aligned Benchmark and a Climate Transition Benchmark.

The hope is, that by having two clearly labelled benchmarks, it will be easy for investors to identify them and compare the two different types. It will hopefully prevent greenwashing, which is a big concern the EU has: that people are saying they’re doing ESG or green investments and they’re not.

Citywire: What’s the difference between the Paris Aligned and Climate Transition Benchmarks? 

Jaspreet: The Climate Transition Benchmark is more lenient. These indices are targeted at a more diverse audience, targeted at institutional investors who are looking to consider these benchmarks, potentially, as part of their core allocation. The Paris Aligned Benchmarks are more restrictive, and they’re targeted at highly ambitious climate investors. 

Both have this requirement to decarbonise at a rate of 7% every year. This is a really important distinction from many other climate benchmarks you see at the moment. This 7% number the rate of decarbonisation that’s required for us to hit net zero emissions by 2050 and to hit that target of limiting warming to 1.5 degrees. 

An interesting shared feature of both benchmarks is that you can’t just tip all the weight into low impact climate sectors to achieve that decarbonisation, you have to maintain the same exposure to high impact climate sectors as well. 

That’s important as we try and transition because we can’t just transition by only investing in IT stocks and media stocks – you have to stay invested and you have to encourage industries and sectors to transition. I’d say the most important difference between the two benchmarks is that the Paris Aligned Benchmark applies exclusions related to fossil fuels. So, say, for instance, if you are driving over 1% of your revenue from producing coal, you’ll be excluded from the Paris Aligned indices. 

Equities have been the traditional go-to instrument for sustainable investing, but green fixed income has boomed in recent years. Manuel tells us what solutions the $100 trillion bond market proposes to combat climate change and the latest trends in this area.

Manuel: In the past, responsible investing was very much tilted or biased towards equity investments.  The thinking behind that was that equity owners had a stake in companies and would therefore, have a voice. They could influence management because they are owners to a certain extent. That is understandable, but now there’s a move into the fixed-income space and that’s where all bonds are.  Where investors really understood, hang on a minute, this is the bigger pool of capital – so, we have to activate that one as well. 

Let’s go on with equities, as that’s a success story in terms of responsible investing, and also activate that other massive pool [fixed income]. The thinking initially that, as a bond investor, you’re not a co-owner of a company, you don’t have a share, you don’t have a vote, you don’t have voice, has really changed. Investors have understood, “hang on a minute, companies have to come back over and over again to refinance their debts”. Arguably, they need you much more than the equity investor, who just buys and holds, maybe forever, or just sells the stock for someone else to buy.

So, companies have to keep a very close and positive constructive relationship with investors and that arguably allows for even closer and more constructive and more powerful engagement between the bondholder and company management.  


Listen to the full audio here: 

Thank you to Citywire, Manuel, Jaspreet and François. To learn more about this topic, download the Lyxor Guide to Climate Investing, or discover our climate-focused ETFs


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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