Lyxor launches multi-factor long/short equity ETF

May 21st, 2018 | By | Category: Alternatives / Multi-Asset

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Lyxor has launched the Lyxor Scientific Beta Developed Long/Short UCITS ETF, providing exposure to an equity market neutral index that is composed of a long position in a number of portfolios designed to maximise exposure to different factors and a short position in a broad market capitalization-weighted index.

Lyxor launches multi-factor long/short equity ETF

The fund provides multi-factor exposure while remaining equity market neutral.

The underlying reference, created by smart beta index provider ERI Scientific Beta, is the Scientific Beta Multi-Beta Multi-Strategy Managed Volatility L/S Equity Market Neutral (x 3.5) Index which includes large- and mid-cap equities from global developed markets.

The long leg of the reference index includes a quarterly allocation to sub-portfolios designed to capture the long-run risk premia associated with tilts towards the value, momentum, low volatility, high profitability, and low investment factors.

The reference index also embeds a short position in a broad market capitalization-weighted index to achieve a market neutral stance.

The allocation across smart factor indices is implemented with the goal of minimising the volatility of the long/short spread. Return amplification is obtained by the use of 3.5x leverage, maintaining volatility below 8%.

Commenting at the time of the index’s launch in October 2017, Noel Amenc, CEO of ERI Scientific Beta, said: “Scientific Beta’s long/short offering corresponds to its investment philosophy: risk management, factor diversification and top-down implementation. The portfolio construction methodology prioritises risk management, which guarantees the robustness of out-of-sample performance.

“It diversifies across multiple factors to benefit from low correlations across factors rather than concentration in factor champions, which lack consistency and are a source of unstable performance and high turnover. The long/short solution is implemented in a top-down manner to allow dynamic allocation across factors, guarantee transparency and facilitate the search for market beta neutrality.”

The fund gains its exposure through indirect (swap-based) replication. It has been listed on Euronext Paris (MFLS FP) where it trades in euros and has been cross-listed on London Stock Exchange (MFLS LN) and Borsa Italiana (MFLS IM) where it trades in US dollars and euros, respectively. Each share class accumulates income generated within its portfolio.

The ETF has a total expense ratio (TER) of 0.55%.

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