Lyxor has launched two pairs of commodity ETFs providing investors with the ability to go long or short specific commodity sectors.
Lyxor has listed four commodity sector ETFs in London tracking industrial metals and agriculture & livestock.
One pair tracks agriculture & livestock, while the other tracks industrial metals. All are based on S&P GSCI commodity sub-indices.
According to Lyxor, the new range enables investors to enhance diversification within their portfolio by targeting specific commodity sectors, meaning they can manage risk more precisely and tailor their portfolio to changing economic conditions and market trends.
While demand for the new ETFs is expected to come primarily from institutional investors, such as hedge funds, sophisticated retail investors have shown a keen interest in commodity ETFs, attracted to the asset class’s long-term secular growth story.
Although Lyxor has in the past launched new funds in Paris first, the France-based ETF issuer has chosen to launch using the London Stock Exchange as the primary listing. According to Lyxor, for this time of product London is deemed it to offer the best trade-off between listing venue and client demand for the dollar exposure.
The ETFs will replicate their benchmark indices by using a total return swap and by investing in a basket of large cap international equities. Lyxor’s parent, investment bank Societe Generale, is the swap counterparty.
While investors have shown a preference for physically replicated ETFs, Lyxor is using a swap-based, or so-called “synthetic”, structure. However, such commodity exposure cannot be replicated by Physical ETFs as the indices are not linked to any underlying shares, says Lyxor.
Total expense ratios are set at 0.35% for the long funds, while the inverse/short funds are moderately higher at 0.40%.
The funds are UCITS compliant and adhere to both the diversification rules and credit risk limits under UCITS IV. Lyxor has stated that it goes beyond UCITS’ rules and manages the fund’s exposure to the swap issuer every day, targeting 0% counterparty risk for all its ETFs.
Lyxor also enforces its own strict guidelines with regards to asset quality, which means that only highly- capitalised, liquid stocks will be used as assets held by the funds. Furthermore, in order to eradicate any hidden counterparty risk, Lyxor does not engage in any securities lending.
