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Lyxor confirms launch of four physically replicated ETFs


Four Lyxor exchange-traded funds based on the EuroMTS Macro Weighted AAA Government Index series will be converted to physical replication on 6 and 11 December 2012.

Four Lyxor exchange-traded funds based on the EuroMTS Macro Weighted AAA Government Index series will be converted to physical replication on 6 and 11 December 2012.

The funds will be managed using full replication: each fund will invest directly in all the sovereign bonds that make up the respective EuroMTS Macro Weighted AAA Government Index, without any sampling. This will achieve the highest possible correlation between the performance of the funds and the performance of the indices.

Securities lending is not part of the management process as the performance benefit to investors would be negligible, and would not justify the addition of counterparty risk to the fund.

As announced previously, Lyxor diversifies its offer to physically replicated ETFs in order to fully address investors’ needs. Lyxor stresses that regardless of the method used to replicate the index, all Lyxor ETFs will comply with high quality standards for transparency, efficiency (performance and low tracking error) and superior liquidity.

The EuroMTS Macro-Weighted AAA Government Bond Indices are Eurozone sovereign indices grouped by maturity, and based on issuers with the highest credit ratings (denoted “AAA”) from two out of the three main ratings agencies.

The “macro-weighted” strategy is a weighting methodology that uses macroeconomic indicators. Country weights are primarily based on Gross Domestic Product (GDP) and then adjusted using the following four indicators: debt to GDP ratio; current account (as a percentage of GDP); quarter-on-quarter GDP growth; long-term interest rates.

While cap-weighted indices calculate exposure on the countries debt level, these macro-weighted indices lead to a fundamental approach that better reflects the economic potential, and the sovereign risks of the euro zone debt market. For fixed income indices, non market capitalisation based indices avoid concentration on the most highly-indebted issuers. They rely on the idea that the capacity of an economy to generate new wealth in a sustainable way, as measured by its GDP and GDP growth, is a good representation of its capacity to fulfil its debt obligations.

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