Lyxor to reach 50% physical ETF assets

Lyxor is to switch key European, Global and US ETFs to physical replication, in a drive to continuously improve the quality of replication for investors. Following the switch, Lyxor will have more than half of its assets (€25bn) in physical replication, making it the third largest physical ETF provider in Europe [1]

This marks a significant acceleration in Lyxor’s use of physical replication, which began in 2012 with the switch of their government bond ETFs, and has since expanded to other key blue chip equity exposures (CAC 40, DAX, IBEX 35).

Commenting on the plans ahead, Arnaud Llinas, Head of ETFs and Indexing, said: “Our priority is to create efficient funds that track precisely and trade at the lowest possible cost to investors. Achieving this across a range as diverse as ours demands flexibility. There is simply no single replication method that works best in every case. We aim to take the best of both worlds, and use each method where it works best for investors, not just today but for the future. Evolving market conditions mean we can now track developed markets better physically, so that is what we will do.”

Going forward, Lyxor’s approach to ETF construction will principally favour physical replication for developed market exposures, and synthetic replication where it can improve efficiency in more complex market exposures (such as emerging markets).

The first of the new wave of switches will be Lyxor’s flagship Euro Stoxx 50 fund (MSE) on November 3rd, 2015. MSE is the largest of its kind in the world with over €7.6bn in assets under management [2]. Other European, Global and US ETFs will follow over the course of the next twelve months.

This acceleration in strategy comes on the back of a record year for Lyxor ETF which saw them gather over €7bn in net new assets, ranking Lyxor ETF 3rd for new assets in 2015 [3].