Lyxor to create physical ETF range

Train tracksLyxor Asset Management, a French investment management firm, said it would launch physical exchange-traded funds (ETFs) before the end of the year, starting with fixed income products.

Lyxor, which is owned by French bank Societe Generale, already operates an ETF business among its four main business lines - which also include alternative investments and structured products – but its existing ETFs synthetically replicate the indices they track.

Physical replication means Lyxor’s funds will own the underlying assets rather than capture returns through derivatives.

The announcement today comes against the backdrop of intense scrutiny of synthetic ETFs led by the European Securities and Markets Authority (Esma), which recently concluded a study about synthetic ETF risks.

Esma had voiced concerns about the increasing use of synthetic and more complex structures by ETF providers – a trend which the regulator felt had created investor protection and market integrity issues. The review was extended to cover broader Ucits funds.

A statement by Lyxor said: “In order to fully address investors’ requirements, Lyxor has decided to develop this [physical replication] approach and offer ‘the best of both worlds’ in the ETF space to its clients.”

Lyxor has over €74.5 billion in assets under management.

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