Lyxor, a leading European provider of exchange-traded funds, has listed five smart beta ETFs on Deutsche Börse’s Xetra designed to capture the low-size, value, quality, low beta and momentum factors within European equities. The launch follows the announcement last month that the Paris-headquartered asset manager was collaborating with JP Morgan to develop a new suite of alternative beta products.
Lyxor’s new ETFs are based on five empirically-backed risk factors.
According to Lyxor, risk factors help explain systematic return patterns in equity markets and offer a new and diversifying allocation framework. The five factor ETFs represent the core equity risk factors which have historically explained much of the performance of diversified portfolios and, importantly, are backed by decades’ worth of empirical evidence.
The ETFs will follow index methodologies developed by JP Morgan and are based on the European equity universe. This follows Lyxor’s view that factor strategies should be implemented at a regional level, not a global one.
The new funds will each provide a more pure exposure to their respective factor returns by focusing on a concentrated pocket of 40 stocks with high factor content. This targeted approach differs from many smart beta products which capture a combination of market beta and factor risk premia by tilting the weightings of a broad range of holdings towards these factors.
The range could be used to express short-term tactical market views, replace style-driven active managers, or to make long-term adjustments to core market capitalisation-weighted portfolios. Given the correlation between these factors is often relatively low, combining these ETFs could also provide an excellent source of risk diversification.
Commenting on collaboration, Arnaud Llinas, Head of Lyxor ETFs and Indexing, said: “Constantly in search for innovative and well-performing investment solutions, we are excited to launch these risk factor ETFs with JP Morgan. The growing interest for risk factor investing stems from investors’ need for portfolio allocation tools focusing on the core drivers of equity markets performance. Lyxor’s approach focuses on five factors (low size, value, momentum, low beta and quality) backed by in-depth research and empirically proven to be very effective”.
Rui Fernandes, Head of EMEA Equities Structuring and Fund linked Products at JP Morgan, added: “We are delighted with this partnership with Lyxor. Investors are seeking more cost efficient and risk adjusted alternatives as they continue to invest into equities, and ETFs present a convenient format in which to do that. These products will be based on JP Morgan’s smart beta indices, which are designed to allow investors to isolate specific sources of risk and return within their portfolios in an effort to maximize performance.”
The funds, outlined below, each have a total expense ratio (TER) of 0.30%. They will likely compete with the iShares suite of European factor ETFs which are based on the MSCI factor indices and focus on the minimum-volatility, quality, size, value and momentum factors.
Lyxor JP Morgan Europe Low Size Factor Index UCITS ETF (LYXS GY)
JP Morgan Equity Risk Premia Europe LOW SIZE FACTOR Long Only Index
Lyxor JP Morgan Europe Value Factor Index UCITS ETF (LYXV GY)
JP Morgan Equity Risk Premia Europe VALUE FACTOR Long Only Index
Lyxor JP Morgan Europe Quality Factor Index UCITS ETF (LYXQ GY)
JP Morgan Equity Risk Premia Europe QUALITY FACTOR Long Only Index
Lyxor JP Morgan Europe Low Beta Factor Index UCITS ETF (LYXL GY)
JP Morgan Equity Risk Premia Europe LOW BETA FACTOR Long Only Index
Lyxor JP Morgan Europe Momentum Factor Index UCITS ETF (LYXM GY)
JP Morgan Equity Risk Premia Europe MOMENTUM FACTOR Long Only Index
Lyxor is Europe’s third largest provider of ETFs, with more than $53.7bn invested across 220 ETFs listed. The firm also has some $13bn of assets managed within smart beta strategies.