As of January 29th, 2016 Lyxor has cut fees on its longstanding Gilt and Treasury ETFs to 0.07 per cent% and UK & US Corporate Bond ETFs to 0.09 per cent in order to improve value for fixed income investors.
With EUR112 billion invested, Fixed Income ETFs represent approximately 25 per cent of the total European ETF market, but with more than 35 per cent of last year’s new assets collected in Fixed Income exposures, this is an increasingly important part of the market.
The firm writes that to date, fixed income ETFs have been out of step with core equity exposures, with TERs typically in the region of 0.15 per cent for Gilts, Treasuries and corporate bonds. “In a low yield environment where for example two year Gilts yield less than 0.5 per cent, these costs significantly diminish an investor’s return. Lyxor’s cost reductions mean that investors can now get better performance,” the firm says.
Discussing this latest move, Chanchal Samadder, Head of UK and Ireland ETF Sales for Lyxor says: “We wanted to create a range of core fixed income exposures that are safe, liquid and low cost. These are staple, safe haven exposures in most portfolios and we wanted to give investors a better deal”.
Lyxor opted for physical replication with no securities lending for Govies, deciding that the benefit to investors is not sufficient to offset the considerable additional risk. However, the firm writes that Corporate Bond exposures are an example where performance can be improved using Synthetic Replication, which is why Lyxor employed this approach in this area. “This is consistent with Lyxor’s pragmatic approach to replication that aims to employ the replication method that will deliver the best results for investors in a particular asset class.”