Lyxor sovereign debt ETFs switch to physical

Lyxor has switched its sovereign bond ETFs to fully physical replication instead of sampling to improve their tracking error.

The five ETFs covering US treasuries, gilts and EM state debt total £421m in assets.

The French firm says the move to physical replication will “optimise performance” and produce better correlations with the indices.

Underlying securities will continue to be lent, but only when the return more than offsets the counterparty risk, the company adds.

Lyxor ETF global head Arnaud Llinas  says: “Our strategy is to offer our clients the most efficient ETFs by selecting the most appropriate replication method for each index.

“We consider our bond index product offering to be much improved by this method of direct replication.”

The ETFs affected are:

Lyxor Ucits ETF iBoxx Dollar Treasuries 10y+

Lyxor Ucits ETF iBoxx Dollar Treasuries 1-3y

Lyxor Ucits ETF iBoxx Dollar Treasuries 5-7y

Lyxor Ucits ETF iBoxx Sterling Gilts

Lyxor Ucits ETF iBoxx Dollar Liquid Emerging Markets Sovereigns