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THIS WEBSITE IS AIMED AT PROFESSIONAL INVESTORS IN THE NETHERLANDS

This website is published by Lyxor International Asset Management (LIAM), a French asset management company approved by the Autorité des Marchés Financiers (the French Financial Markets Authority) (AMF) (17 place de la Bourse 75082 Paris Cedex 02) under the UCITS (2009/65/EC) and AIFM (2011/31/EU) directives. LIAM is registered in the Netherlands in the public register of the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten) as a manager (beheerder) of a UCITS.

The website is hosted on Microsoft Azure servers.

This website is subject to French and Dutch law.

 

A professional investor is a professional investor (professionele belegger) within the meaning of the Act on the Financial Supervision (Wet op het financieel toezicht) (AFS).

A professional investor within the meaning of the AFS is one of the following:

  • a bank
  • a collective investment scheme (UCITS or AIF) and a management company of such scheme
  • a pension fund and management company of such fund
  • an investment firm
  • a national or regional governments, public bodies, central bank, international or supranational financial organisation or other type of international organisation
  • a market maker
  • a local: party trading only for its own account or providing quotes for trades in derivatives
  • an insurance company
  • a financial institution
  • commodity and commodity derivatives dealers
  • institutional investors whose main activity is to invest in financial instruments, including entities dedicated to the securitisation of assets or other financing transactions
  • large undertakings meeting two of the following size requirements on a company basis (a) balance sheet total of EUR 20,000,000, (b) net turnover of EUR 40,000,000 and (c) own funds of € 2,000,000

 

Please note that the above summary is provided for information purposes only. If you are uncertain as to whether you can be classified as a professional investor within the meaning of the AFS then you should seek independent advice.

 

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 Dutch regulatory system generally and for funds authorised in the Netherlands 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 UK Financial Services Compensation Scheme, the Dutch Investor Compensation Scheme (beleggerscompensatiestelsel) or by any similar scheme.

 

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 UK Financial Services Compensation Scheme, the Dutch Investor Compensation Scheme (beleggerscompensatiestelsel) or by 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.nl. 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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13 Sep 2019

These factors explain the spectacular rise of ESG investing

2019 is the year that ‘ESG’ investing – adding environmental, social, and governance analysis into investment portfolios – hit the mainstream. Whether it’s looking at working conditions or gender diversity, reporting transparency or climate impact, more investors than ever are asking companies tough questions and challenging the ethos of “returns at any cost”.

And companies are responding too. Nearly 200 CEOs of major US firms including Apple, Walmart and Amazon recently stated that shareholder value should no longer be the number one priority, and are refocusing more attention to how they serve their employees, customers and suppliers, as well as the environment and the wider community.1

Today we kick off a series of short articles focusing on the role of ESG in portfolio construction. In this first instalment, we will cover the drivers of this growing shift towards ESG investing.

  • What’s behind ESG’s popularity? What are the trends in this area?
  • How do investors make ESG choices? Where do they get ESG data?
  • Does it make sense to invest in ESG using a passive approach?

What is driving the rise of ESG?

1. Recent financial crises

The global financial crisis of 2007-08, as well as company controversies such as the Volkswagen emissions scandal or BP Deepwater Horizon spill, have demonstrated to investors the risk of focusing on the short term and neglecting shareholder stewardship. In a number of high-profile cases, these scandals have significantly hit share prices and caused ripples throughout financial markets – incentivising investors to screen companies based on ESG practices in future.

2. More climate change awareness

More and more investors acknowledge the scale and potential impact of climate change. The global move towards reducing greenhouse gas emissions and increasing renewable energies will affect investments in all kinds of industries – not just energy. Food production, water provision, forestry and tourism will all be changed by this transition, and investors increasingly understand that supporting low-carbon projects and encouraging sustainable business will be necessary for long-term returns. Many are choosing to be proactive in this area by using ESG screens to direct capital towards change leaders.

3. Regulatory pressure

Professional investors are additionally being pushed by regulators to integrate ESG risk analysis and disclosure into the fiduciary investment process. Most of the world’s largest asset managers are now signatories to the United Nations’ Principles for Responsible Investment (PRI), representing assets under management of $86Trn.2 That’s a huge increase since a decade ago.

PRI Signatory growth2

Chart 1

How can investors make ESG choices in portfolios?

Publicly available ESG information is becoming richer and more extensive, helping analysts assess the performance of companies according to ESG criteria.

For example, under the European Union’s Non-Financial Reporting Directive, from January 2017 all listed EU companies with more than 500 employees have had to disclose in their annual reports a variety of information relating to environmental, social and employee matters, respect for human rights, and corruption.

Specialised ESG databases run by governments, NGOs and academic institutions, as well as proprietary ESG scoring and ratings systems operated by extra-financial agencies, are also helping investors build a much more detailed picture of companies’ ESG performance.

Important recent political initiatives on sustainability are now part of many countries’ national legislation. These include the agreement reached at the 2015 Paris climate change conference, where 195 countries committed themselves to limit global warming to a maximum of 2 percent above pre-industrial levels.

All of this work is increasingly captured in indices, allowing investors to easily buy a basket of companies screened for ESG practices.

What is the best investment approach for ESG?

Although many ESG investors use active stock selection, a passive or index-based investment approach is equally well-suited for ESG. Sustainable indices can be used to express a variety of different investment approaches, including ESG integration, convictions on sustainability, or themes linked to the UN’s SDG framework.

Passive investment strategies have democratised access to the financial markets at a low cost, features that are entirely consistent with a focus on ESG goals. And both passive and ESG investment approaches are data-driven. The index company MSCI estimates that $180bn was allocated to its ESG indices between 2014 and Q2 2019.

Lyxor expects the role of financial indices in the area of sustainable investing to increase further. Benchmarks are now being used by policymakers as instruments to orient investor choices and to re-direct investment flows. And rather than just serving as a way to measure ESG risks, a new generation of ESG benchmarks is being developed to have a measurable impact, such as helping to meet climate transition goals under the Paris COP21 framework.

Read more about passive investing in ESG in our new report.

report cover

Takeaways of part 1

  • ESG’s rise is driven both by bottom-up pressure from asset owners and by top-down policy initiatives.
  • More and more investors now focus on maximising ESG performance subject to risk-return constraints.
  • New ESG benchmarks are developed to have a measurable impact on key global goals.

In the next instalment…

We look at the question of flows:  How much demand is there for active or passive ESG funds? What do ETF flows tell us about ESG demand?


This article is for informative purposes only, and should not be taken as investment advice. Lyxor ETF does not in any way endorse or promote the companies mentioned in this article. Capital at risk. Please read our Risk Warning below.

1Source: Forbes, August 2019, Nearly 200 CEOs Say Shareholder Value Isn’t Everything.

2Source: UN PRI, as at end of June 2019.

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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