Passive investments can be the building blocks for many portfolios, but index tracking now goes way beyond single markets. As more investors have integrated passive into their portfolios, many funds now target investor objectives.
This was previously possibly only through active managers, but objective based ETFs can replicate these strategies with absolute consistency, and at a much lower cost.
Enter Smart Beta
Smart Beta is a term that is floated around a lot, but what does it really mean? At Lyxor we see smart beta as a midpoint between active and passive investing. It's a way for investors to capture the key performance drivers used by stockpickers - like selecting high yielding or value stocks - whilst keeping the key benefits of ETFs - like transparency and low costs. Whether you are looking for risk control, targeting income or needing to enhance returns, a Smart Beta fund can help you to stay on track towards your long-term portfolio goals.
>>Find out more about Smart Beta
Risk Control
We all know that markets can get rocky sometimes but that doesn't mean you should lose out on those returns. - not every investor can bear full market risk, but there is an opportunity cost of remaining in cash or fixed income markets. With the current political and economic climate more investors are being forced into equity markets and granted they tend to be unpredictable!
As long as you invest in equities, risk cannot be completely eliminated. But minimum variance indices can reduce risk by up to 30% compared with a standard market index - which can smooth the road. At Lyxor, we chose to use FTSE's minimum variance indices - these not only reduce risk, but also retain a high level of diversification. This can be important as in the quest to reduce volatility, you don't want to end up with all your eggs in one basket.
>>View Lyxor's range of ETFs for risk reduction
Income
Rates are low and bond yields are uninspiring, so many investors are looking to equity income. Income-focused passives use a smart beta approach to target higher yielding assets. The hunt for returns can lead to the "yield trap" - buying struggling companies with high but unsustainable yield. However big data and better data means more refined strategies have been launched in recent years.
Income focused ETFs offer a direct way to target dividends, and their yield can be higher when income is a priority. They offer an alternative to an active equity income fund, but without the risk of managers taking a bad call or leaving. And with TERs as low as 0.19%, this is still a very low cost way to access dividends.
>>Find out more about low cost passive equity income
Enhance Returns
So we know that markets are unpredictable and that's not likely to change anytime soon. Equities tend to be more risky than bonds, but with the risk can come greater rewards. Historically asset classes, for example bonds and equities, would move inversely to each other but that doesn't seem to be the case anymore. When markets are more correlated, you have to go further to find true performance.
Factor investing is a term used for selecting stocks according to a specific behaviour such as those rising fastest or offering highest value. This is an approach used widely in the pension fund world, and through ETFs it's now easier to isolate stock characteristics which have been shown to improve returns in the long run. And this can be integrated as part of the portfolio core or satellite to tilt exposures in the long run. Factor investing does come with a word of caution; its a fast moving world and you need to stay on top of your strategy if you want to be in the right factor, at the right time. Some prefer a multifactor approach that spreads risk across factors.
Quick take: Lyxor offers a range of objective based ETFs, using smart beta and factors to achieve goals which were previously only available through active strategies. These can be offered at total expense ratios from 0.19%. For more information, visit LyxorETF.co.uk
Charge data - Lyxor ETF, correct as at 20/11/17. Risk reduction Lyxor International Asset Management, Bloomberg. Data from 30/12/2015 to 31/08/2016. Past performance is not a reliable indicator of future performance.
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This communication is exclusively directed and available to Institutional Investors as defined by the 2004/39/EC Directive on markets in financial instruments acting for their own account and categorised as eligible counterparties or professional clients. This communication is not directed at retail clients. This document 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.
Some of the funds described in this brochure are sub-funds of either Multi Units Luxembourg or Lyxor Index Fund, being both investment companies with Variable Capital (SICAV) incorporated under Luxembourg Law, listed on the official list of Undertakings for Collective Investment, and have been approved and authorised by the CSSF under Part I of the Luxembourg Law of 17th December 2010 (the "2010 Law") on Undertakings for Collective Investment in accordance with provisions of the Directive 2009/65/EC (the "2009 Directive") and subject to the supervision of the Commission de Surveillance du Secteur Financier (CSSF). Alternatively, some of the funds described in this document are either (i) French FCPs (fonds commun de placement) or (ii) sub-funds of Multi Units France a French SICAV, both the French FCPs and sub-funds of Multi Units France are incorporated under the French Law and approved by the French Autorité des marchés financiers. Each fund complies with the UCITS Directive (2009/65/CE), and has been approved by the French Autorité des marchés financiers.
Société Générale and Lyxor AM recommend that investors read carefully the "risk factors" section of the product's prospectus and Key Investor Information Document (KIID). The prospectus and the KIID are available in French on the website of the AMF(www.amf-france.org). The prospectus in English and the KIID in the relevant local language (for all the countries referred to, in this document as a country in which a public offer of the product is authorised) are available free of charge on lyxoretf. com or upon request to client-services-etf@ lyxor.com. The products are the object of market-making contracts, the purpose of which is to ensure the liquidity of the products on NYSE Euronext Paris, Deutsche Boerse (Xetra) and 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 together with the prospectus and/or more generally any information or documents with respect to or in connection with the Fund does not constitute an offer for sale or solicitation of an offer for sale in any jurisdiction (i) in which such offer or solicitation is not authorized, (ii) in which the person making such offer or solicitation is not qualified to do so, or (iii) to any person to whom it is unlawful to make such offer or solicitation. In addition, the shares are not registered under the U.S Securities Act of 1933 and may not be directly or indirectly offered or sold in the United States (including its territories or possessions) or to or for the benefit of a U.S Person (being a "United State Person" within the meaning of Regulation S under the Securities Act of 1933 of the United States, as amended, and/or any person not included in the definition of "Non-United States Person" within the meaning of Section 4.7 (a) (1) (iv) of the rules of the U.S. Commodity Futures Trading Commission.). No U.S federal or state securities commission has reviewed or approved this document and more generally any documents with respect to or in connection with the fund. Any representation to the contrary is a criminal offence. This document is of a commercial nature and not of 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. These funds include a risk of capital loss. The redemption value of this fund may be less than the amount initially invested. The value of this fund can go down as well as up and the return upon the investment will therefore necessarily be variable. In a worst case scenario, investors could sustain the loss of their entire investment. This document is confidential and may be neither communicated to any third party (with the exception of external advisors on the condition that they themselves respect this confidentiality undertaking) nor copied in whole or in part, without the prior written consent of Lyxor AM or Société Générale. The obtaining of the tax advantages or treatments defined in this document (as the case may be) depends on each investor's particular tax status, the jurisdiction from which it invests as well as applicable laws. This tax treatment can be modified at any time. We recommend to investors who wish to obtain further information on their tax status that they seek assistance from their tax advisor. The attention of the investor is drawn to the fact that the net asset value stated in this document (as the case may be) cannot be used as a basis for subscriptions and/or redemptions. The market information displayed in this document is based on data at a given moment and may change from time to time. Authorizations: Lyxor International Asset Management (Lyxor AM) is a French management company authorized by the Autorité des marchés financiers and placed under the regulations of the UCITS (2009/65/EC) 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.
