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Lyxor extends Euro range on back of European QE measures

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Lyxor ETF, the third largest ETF provider in Europe, has recently extended its Euro Govies range with an ETF on ultra long duration bonds. Chanchal Samadder (pictured), head of UK sales at the firm, explains that the development comes on the back of client demand which in turn was driven by the introduction of quantitative easing in Europe. 

Samadder says: “Clients are looking for yield but don’t want to sacrifice credit quality. They are constrained about where they can invest – long duration gives a yield pick up by moving along the curve.”

The European QE move means that rates are not expected to rise any time in the near future and some holders of German bonds are paying for the privilege.

Lyxor has been offering ETFs since 2001 when it launched its first product on the French CAC40 Index. “We have a broad and diversified product range across all asset classes” Samadder says. “Our clients in the UK are mainly institutional and professional with a core market of institutional asset managers and the larger wealth managers.”

In the UK,  clients are becoming  more sophisticated in their selection of passive vehicles, and might use index funds and futures in addition to ETFs “It comes down to investor needs on liquidity and their investment time horizon” Samadder says.

In terms of client trends at the moment, Samadder finds that there have been two main trends  over the last 12 months. Currency volatility in the Japanese Yen and Euro has driven demand in the UK for currency hedged products, hedging the FX exposure to foreign equities.  “The contribution of the return of currencies within equities has become significant” Samadder says. “Many clients can’t do their own hedging.”

An example of a product that can help with this is an ETF which holds an underlying index exposure, such as the Eurostoxx 50 and within it is a foreign exchange forward on the Euro versus Sterling or US Dollar with daily hedging.

The second important trend in ETFs over the last 12 months has been the rise in Smart Beta. “There has been a huge increase in interest for non market cap based indices so it’s still rules based but constructed in a different way” Samadder explains. ETFs like these can be risk weighted or constructed to reduce volatility to meet client needs.

Samadder says: “There are many strategies out there and for us one product which has been very successful is Global Quality Income – an ETF which tracks an index designed by our head of quantitative equity and based on an strong academic foundation.” This ETF is designed to deliver a portfolio of companies that are consistent dividend payers with a strong balance sheet. “So if there is a downturn in the market these companies still pay out a dividend.”

Lyxor has enjoyed interest for this product from all segments of the market. “Generally fixed income and smart beta are important now” he says. “The equity  ETF world is mature and most of the obvious benchmarks are covered whereas in fixed income there are huge opportunities and the market is relatively small.”

Fundamentally it is difficult for most investors investor to buy a basket of corporate bonds and to get diversification can be very expensive – fixed income in sub markets such as emerging market debt is increasingly in demand.

Samadder says: “ETFs bring on exchange liquidity to the underlying instrument which is traded OTC.”

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