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How ESG Trend Leaders make a difference


Spices, silks and Chinese porcelain are what most people associate the Dutch East India Company with, but it was also the first company to be targeted by activist shareholders back in the 1600s*. In the four centuries since, shareholders have become much more active and powerful. According to the World Economic Forum, more than 750 companies were targeted by activists in 2016.

Passive investing has also grown over time and some passive funds are now among the biggest shareholders of many public companies. This has led to concerns they may be “silent” when it comes to tackling firms to improve corporate governance and account for ESG factors.

One reason for this is the perception that passive managers lack the power their active counterparts have to offload stocks of companies with poor governance or ESG records. In theory, these companies could still attract investments from passive funds, simply by virtue of their inclusion in a benchmark.  At Lyxor, we may be passive, but we’re not powerless.

Leaders, not followers

Our ESG investment platform is founded on two pillars. The first – unique to Lyxor - is made up of four thematic funds designed for investors seeking to make a tangible and specific impact. The second is made up of four newly-launched ESG Trend Leaders, built in partnership with MSCI.

We chose MSCI because their expertise in ESG data gathering and scoring is second to none. They’ve been collecting, cleaning and standardising data on ESG policies, programmes and performance for over 40 years. Using over 1,000 data points from a wide range of public sources, their dedicated ESG team covers approximately 6,400 companies, giving each their own rating.

A step further

Using this data, MSCI built broad SRI indices capable of isolating the best-in-class stocks. This approach gives bigger index weightings to companies with the highest scores. Our Trend Leaders go one better by identifying companies with the right ESG profile and then taking into account how that rating changes over time. Those companies striving to improve their ratings are awarded higher scores, meaning they are more likely to be assigned bigger weights.

We know investors are concerned about the kinds of companies they hold in their portfolio, so these indices automatically exclude companies involved in activities with a high potential for negative social and/or environmental impact, including Alcohol, Tobacco, Gambling, Nuclear power and weapons manufacturers. 

The way the indices are composed means we are effectively making positive and active stock picks, which should motivate companies under consideration to improve their ESG ratings and attract investment. The portfolios do differ from their parent indices as the World Trend Leaders example below shows, albeit the top 10 holdings still include familiar names like Microsoft and Facebook. They are also much more diverse than their conventional MSCI SRI counterparts, with each of the indices holding at least twice the stocks (as at end February 2018).

 And this form of passive activism works – MSCI data shows rewarding ESG momentum can improve company performance more than the threat of exclusion or just tilting weightings towards those companies with the best score.


How they look – sector exposure for World Trend Leaders vs. MSCI World

chart 1 - how they look

Data as at 30/03/2018. Source: Lyxor International Asset Management, MSCI, Bloomberg

These Trend Leaders enable investors to switch their core allocations in World, Emerging, US or European equities to equivalent allocations with a much better ESG rating in order to have a broadly positive impact on the world around them – all the while achieving similar returns. And they do it all for as little as 0.20% TER. It’s not so much why shouldn’t you make the switch, why wouldn’t you?




What they’ve achieved – similar returns

trend leaders

Data as at 30/03/2018. Source: Lyxor International Asset Management, MSCI, Bloomberg


Be the difference 

Our own form of activism doesn’t stop there. We are committed to promoting sound governance. We started voting actively in 2015 and now work in tandem with Institutional Shareholder Services, one of the world’s largest proxy organisations, to make our voice heard more often than we otherwise could. They provide customised recommendations on how we should vote, based on our voting policy, but the final decision always rests with us.

We have no intention of being the silent shareholder. We can and will be louder than our active counterparts when it comes to influencing management to act in the best interests of shareholders, society and the environment in the years to come.

Why choose Lyxor for ESG?

We are committed to ESG investing and the difference it could make, which is why we’ve been a signatory of the UN’s Principles for Responsible Investment (PRI) since December 2014. We believe in taking action, which is why we vote as frequently as we do and why we work with a third party to ensure our voice will be heard even more. We have the products to match our intentions – including being the only provider in Europe offering ETFs on four of the UN’s Sustainable Development Goals**. Finally, we set standards by transparently publishing the estimated carbon footprint of all our equity ETFs on our website.

All data & opinion: MSCI & Lyxor International Asset Management as at 10 May 2018 unless otherwise stated. Past performance is no guide to future returns. * Wall Street Journal, December 2015 ** Gender Equality, Glean Water and Sanitation, Affordable and Clean Energy, and Climate Action.

Risk Warning

THIS COMMUNICATION IS FOR ELIGIBLE COUNTERPARTIES OR PROFESSIONAL CLIENTS ONLY

All views and opinions: Lyxor & SG Cross Asset & ETF Research teams as at 3 May 2018 unless otherwise stated. Past performance is no guide to future returns.

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.

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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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