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This website is published by Lyxor International Asset Management (LIAM), a French asset management company approved by the AMF (17 place de la Bourse 75082 Paris Cedex 02) under the UCITS (2009/65/EC) and AIFM (2011/31/EU) directives.

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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. 

 

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August, 2015

 

 

 

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26 Jun 2020

What are sustainable ‘Smart Cities’? Our view on a key investment theme for the years ahead

Investors have talked for years about ‘megatrends’ – the technological, environmental, social and economic shifts reshaping the world.

Megatrends are a way to conceptualise the major themes of our age, including climate change, technological innovation and shifting economic power.

Today, as the world grapples with the coronavirus pandemic, more people are coming to recognise that global forces can transcend national borders. For some investors, this has raised questions about which approach is best to stay one step ahead in a changing world.

In this article, we will highlight one of the global megatrends whose importance has grown during the current crisis, which represents an important sustainable investment theme for the years ahead.

From megatrend to investment theme

Urbanisation refers to the millions of people moving from rural areas and small towns to cities around the world each year, and the impact this has on the environment, public health and infrastructure.

It’s hard to overstate how important cities are in the modern world. They house half of all people on earth1, consume two-thirds of the energy, and generate 70% of the greenhouse gas2. Cities are also much more population-dense than rural areas and towns, with implications for the public health impact of pollution and disease.

As they grow in size and environmental footprint, cities face a huge challenge to stay sustainable and safe for residents. Companies who develop innovative solutions to urban challenges are likely to grow rapidly, especially given that there are already 33 megacities of over 10 million inhabitants around the world3.

The urbanisation megatrend will increase the importance of all kinds of smart urban technology - from adaptive traffic management and street lighting to temperature testing and bike sharing - in the quest to make city life cleaner and safer in the years to come. 

1 McKinsey Global Institute, June 2018, Smart Cities: digital solutions for a more livable future
2 C40 Cities, https://www.c40.org/why_cities
3 United Nations, The World’s Cities in 2018, https://www.un.org/en/events/citiesday/assets/pdf/the_worlds_cities_in_2018_data_booklet.pdf

Smart cities: taking on the urbanisation challenge 

There’s a great deal of scope to improve urban infrastructure to meet new challenges. For instance, smart environmental, water and waste solutions can use sensors and analytics to track consumption, detect leaks, manage waste and monitor water quality.

Smart energy can improve sustainability by reducing urban power use with smart meters, dynamic electricity pricing, automated streetlights, as well as tools to monitor and change human behaviour in response to external risks.

Technology can also help city residents live safer and healthier lives. In early 2020, the Chinese government deployed drones to monitor the streets of Wuhan, epicentre of the initial coronavirus outbreak, and asked citizens to wear protective masks to help limit its spread4.

South Korea, already known as a global leader in smart-city technology, has been using a system called the Smart City Data Hub for contact tracing and the country has had great success in managing the coronavirus too.

According to Lukas Neckermann, author of ‘The Mobility Revolution’ and ‘Smart Cities, Smart Mobility’, urban authorities all over the world will look to the cities which dealt best with the turmoil of 2020 and learn from them for the future5.

4 Wall Street Journal, May 2020, https://www.wsj.com/video/china-deploys-drones-citizens-and-big-data-to-tackle-coronavirus
5 Comments made during Lyxor ETF’s live Thematic ETF Virtual Masterclass, 6 May 2020


How Smart Cities could improve our quality of life

Chart 1

Chart source: McKinsey Global Institute, June 2018, Smart Cities: digital solutions for a more livable future

Investing to stay one step ahead

We have looked at how a broad global shift such as urbanisation can be translated into an investment proposition by identifying the companies which address the challenges it poses.

For smart cities, that means more than just technology. To capture the theme’s full potential, it must include the entire value chain that emerges from the theme. In this case, that means the traditional industrial firms, transport companies and utilities embracing the principles of smart cities and adapting their products and business model to match.

Lyxor took on the challenge of creating a scientifically-rigorous investment product to invest in the smart city value chain – as well as all of the other most important investment themes coming from megatrends.

We have built and just launched a range of different thematic ETFs, with MSCI indices that use data-science techniques known as natural language processing (NLP) to help identify the relevant companies within each theme and capture the full value chain. A thematic expert panel retained by MSCI also offers input on the evolution of each theme on an annual basis. We also include an Environmental, Social, and Governance (ESG) filtering screen so we can build the future together, sustainably and responsibly.

The investment themes that come from megatrends don’t rely on the next quarter of results and or the latest GDP figures – they are structural shifts that will play out over years and decades.

Learn more about Smart Cities and the rest of our unique Thematic ETF range

Relevant ETFs

Target TER for these Thematic ETFs is 0.45% but has temporarily been decreased to 0.15% until September 2021.

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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