Lyxor introduces Euro-hedged JPX-Nikkei 400 ETF

Feb 3rd, 2015 | By | Category: Equities

Lyxor, Europe’s third largest provider of exchange-traded funds, has announced the launch of the Lyxor UCITS ETF JPX-Nikkei 400 Daily Hedged C-EUR.

Lyxor introduces Euro-hedged JPX-Nikkei 400 ETF

Lyxor’s latest ETF provides euro-hedged “smart beta” exposure to 400 stocks listed primarily on the Tokyo Stock Exchange.

The fund, which has been listed on Euronext Paris, is the first currency-hedged ETF to track the innovative and widely followed JPX-Nikkei 400 Index.

Thanks to an embedded daily currency hedge mechanism, the ETF neutralises the effect of fluctuations in the Japanese yen / euro exchange rate which can lead to significant divergence between the target index return in local currency, yen, and the non-hedged return in listing currency, euro.

The new currency-hedged ETF follows the successful launch of a non-hedged share class in September 2014 which has pulled in more than EUR 300 million in assets since its launch.

The ETF’s underlying index, the JPX-Nikkei 400, was jointly developed by Nikkei, Japan Exchange Group and Tokyo Stock Exchange and has fast established itself as an important reference benchmark for the Japanese equity market since its debut in 2013.

The index follows a smart beta methodology and is composed of 400 stocks with a high appeal to investors. Rather than selecting stocks according to market capitalisation alone, the index applies a range of quantitative and qualitative criteria, including measures of capital efficiency and corporate governance, to select stocks expected to deliver shareholder value.

The universe of eligible stocks for the index begins with those stocks traded across all sections of the Tokyo Stock Exchange, namely the 1st section (large caps), 2nd section (mid-sized companies) and the Mothers and JASDAQ (high growth and emerging companies). One thousand stocks are selected based on trading value in the past 3 years and the market value on the selection base date (the end of June) of the annual review. Each stock is then scored by 3-year average ROE, 3-year cumulative operating profit and market value on the selection base date with the weights on the each indicator 40%, 40% and 20% respectively.

Four hundred stocks are then selected based on not only their final ranking score, but also on qualitative factors from the perspective of corporate governance and disclosure. These qualitative factors are a way to evaluate the rules and processes in place that demonstrate how well the company is run, and how effectively it is balancing the interests of its stakeholders, including directors, shareholders and customers. Examples of how good corporate governance may be measured include the appointment of independent outside directors, adoption of the International Financial Reporting Standards framework for accounting purposes, and disclosure of earnings information in English. The final 400 constituents are then weighted by free-float-adjusted market capitalization, with a cap of 1.5%.

The EUR currency-hedged share class has a total expense ratio of 0.25% per annum.

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