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Please read the important information below before continuing to our website.  

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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.

 

The website is hosted by on Microsoft Azure servers.

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
  • an investment firm
  • any other authorised or regulated financial institution
  • an insurance company
  • a collective investment scheme or the management company of such a scheme
  • a pension fund or the management company of a pension fund
  • a commodity or commodity derivatives dealer
  • a local
  • any other institutional investor

– 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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By clicking on your client type to enter the website, you shall be deemed to have represented to us that you are not a U.S. person and that you are not located in the United States of America, its territories and possessions, and any State of the United States of America and that you are authorised to receive the information to and on this website.

 

 

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05 Dec 2019

Stocking fillers for your bond portfolio  

It’s that time of year when we look back at what might have been – and what’s to come in 2020.  

The decade-long global economic cycle has held up in spite of heightened political uncertainty across the globe. The substantial reduction in recent weeks of two of the major risks faced by the global economy - a no-deal Brexit and the escalation of the US-China trade dispute - has also been a market changer for risk assets into year-end. Looking into 2020, there’s a lot to look forward to (or worry about) so here we share our views on fixed income portfolio allocation, before the party season kicks in. 

US bonds: Threat of US recession is not imminent

Despite signs of weakness from the business sector, we believe US economic growth will hold up in 2020, supported by the resilient private sector. Tight labour, rising wage costs and the difficulty of passing these costs on to consumers should narrow margins and disincentivise investment and hiring. An intensifying profit squeeze will ultimately trigger economic contraction. However, we do not expect such a US recession to materialise before 2021.

A mild pick-up in economic activity over H1 2020 and upside pressure on wages should push inflation expectations higher. In our view, inflation-linked bonds should prove more resilient versus nominal bonds in the year ahead. We maintain a preference for US inflation breakeven bonds, which remain attractively valued and hold no duration risks.  The Fed should maintain policy rates at current levels over that period, allowing for further upward pressure on the long end of the US Treasuries yield curve. We therefore stick to our preference for the short end of the curve. Further steepening of the 2-10 year curve should materialise in the first part of the year.

Downside risks may be more prevalent in H2 during the US presidential election campaign.  Inflation expectations would be vulnerable to a worsening of financial conditions (notably wider credit spreads and weaker equities), especially in an environment of slowing growth. As late-cycle assets, commodities can act as a hedge against higher inflation and downside pressure on the USD.

EUR rates and curve: A more favourable outlook 

The growth outlook is more favourable for the euro area economy than for the US. Domestic demand proved resilient over the past year and should remain so in the year ahead. The contribution from net trade to growth has been more complex to assess. However, some easing in trade tensions between the US and China would benefit global trade and Germany.  A mild cyclical upswing looks to be on the cards.

With the ECB running low on ammunition, calls for fiscal stimulus to pick up the baton have intensified. While large fiscal stimulus would be only considered if growth disappoints further, modest fiscal easing can be expected from the Netherlands and Germany. A more coordinated effort at the European level via public investment would prove the most beneficial to boost growth in the euro area. However, there are many political hurdles for this to materialise. All in all, budget balance expansion will maintain upside pressure on the long end of the European curve, while short-term rates should stay anchored.  

Given the outlook, the hunt for yield will likely remain a key driver of performance in the euro area’s bond market in the medium term. The restart of the ECB’s Asset Purchase Programme (APP) should be supportive for Italian bonds. BTPs’ performance lagged other peripheral bond markets and still offer good carry. The recently instated pro-Europe government allowed for improved relations with the European Commission, and an Emergency Debt Procedure now seems unlikely. The rating outlook is currently stable, a supportive factor for flows into the market.

Even if it is unlikely that inflation expectations move much higher in the near term, there are reasons to hold inflation-linked bonds. The inflation breakeven rate is currently priced well below surveys of long-term inflation expectations. Moreover, with the ECB expected to stay put next year as a mild economic recovery is expected to materialise, this should allow for further normalisation in inflation expectations. 

EM debt: Stick to hard currency 

The path of monetary policy across most EM economies will likely continue to differ, although the general trend remains towards easier policy. We expect EM central banks to ease rates further by another ~45bps on average in a context of subdued inflation pressures. The Indian economy suffered from a severe slowdown – from 8% to 5% within one year – with low inflation outside of food. Therefore, even after 135bp of rate cuts over the past 11 months, more is expected in the year ahead. In China, the PBoC should also remain supportive and look through supply-driven CPI inflation to support the real economy. On the downside, even if there were a ‘phase one’ deal, US-China tensions would probably persist, with the epicentre potentially shifting to the tech and financial sectors.

In our view, EM debt will benefit from ample liquidity conditions across the globe and an attractive carry versus most developed markets. Default rates remain low. While we do not expect 2019’s stellar performance, we expect high single digit upside for hard currency debt in a context of stronger debt issuance. 

ESG: Go Green!

In Europe, there have been increasing discussions on whether, and if so how, central banks and banking supervisors can contribute to mitigating climate change. This is still early stages, but newly appointed ECB President Christine Lagarde made it a priority.

Despite the absence of an explicit environmental target in the APP, the ECB has purchased green bonds under both the CSPP and the public sector purchase programme. Since the CSPP launch in March 2016, green bond spreads have steadily declined and a significant part of this can be attributed to the Eurosystem’s purchases.

Looking ahead, given the global commitment to shift to a low-carbon economy, the green bond market is likely to continue to grow and attract more diverse issuers and investors. The ECB’s new round of asset purchases should act as an additional support for the market. 


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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