Lyxor, the Paris-based exchange-traded fund provider and subsidiary of Societe Generale, has announced the listing of a multi-factor smart beta ETF built on the Lyxor range of single-factor ETF strategies launched in July of this year.

Francois Millet, Head of ETF and Index Product Development at Lyxor Asset Management.

The multi-factor fund is based on a J.P. Morgan index and provides access to a combination of factor exposures which have historically provided excess returns over market capitalisation weighted benchmarks, namely: low size, value, quality, low beta and momentum.

Francois Millet, Head of ETF and Index Product Development at Lyxor Asset Management said: “Factors are increasingly used by investors to enhance their risk-adjusted returns and increase their diversification. These five risk factors help to explain the systematic return patterns of the equity markets, which have been exploited by active fund managers for many years”.

Single-factor exposures have been shown to provide significant long-term outperformance, but they can also go through periods of short- and medium-term underperformance. As the correlations between each factor are often quite weak, combining them should provide diversification benefits which can smooth performance.

“Our single factor indices have been developed as a toolbox for managers to tactically or strategically allocate between different factors in accordance with their views,” said Arnaud Jobert, EMEA head of Equity Payoffs and Tradable Index Structuring team at J.P. Morgan. “This multi-factor product is a simple and transparent application of that philosophy, built to enable investors to replace their core market cap weighted equity exposure and realise enhanced returns and diversification from single factors.”

The fund tracks the J.P. Morgan Equity Risk Premia – Europe’s Multi-factor Long Only (EUR) Index which is constructed as an equally-weighted allocation to the five factor indices, also provided by J.P. Morgan. The individual factor indices are based on the MSCI Europe universe of approximately 440 stocks. Each index selects the 40 highest ranking stocks for each of the five factors; low size, value, quality, low beta and momentum. Each factor is equally weighted within the final index and re-balanced on a monthly basis to keep the selection up to date.

The J.P. Morgan Multi-Factor Europe Index UCITS ETF (LYX5 GY) is listed on Xetra and carries a total expense ratio of 0.40%.