Lyxor switches £16bn in ETFs to physical replication

ETFsLyxor ETF is to switch more than €25bn (£16bn) of its ETF assets to physical replication.

The first  fund to switch will be Lyxor’s flagship £5.4bn Euro Stoxx 50 fund, which will change on 3 November.

Other European, Global and US ETFs will also switch over the course of the next year, the firm said.

Subject to the AMF (Autorité des Marchés Financiers), this includes the Topix and MSCI EMU to be switched in the first quarter of 2016, MSCI Europe in the third quarter of 2016, and the MSCI World and MSCI USA to be switched in the last quarter of next year.

Lyxor ETF head of ETF Marketing for Northern Europe Ben Thompson says: “
We are making the switch to physical replication where we believe there will be an improvement in performance for investors.

“For example, following thorough analysis by our portfolio management team we have concluded that due to changes in market conditions, the switch of the Lyxor UCITS ETF Euro Stoxx 50 to physical replication will yield an increase in performance against the benchmark of 0.15 per cent, which is 75 per cent of the fund’s total expense ratio.”

The company will use physical replication for developed market indices and synthetic replication for more complex indices, such as emerging markets, believing that the approach would be “easily understood”, and offer “clear value to investors”.

The firm says it has no plans to move all funds to physical replication but only those with “more complex or niche market exposures” will be affected.

There will be no change to the TER of the funds as a result of the switch, the firm also says.

Thompson adds: “We have an extensive range of over 230 ETFs, which spans all types of asset class, regions, sectors and investment styles. There is simply no single replication method that delivers the best result for clients in terms of precise tracking and liquid trading in every one of our markets.

“We decided back in 2012 to be pragmatic about our choice of replication, to recognise the strength of each method, and to deploy each where they make most sense for investors.”

As of September, Lyxor ETF has £32bn of ETF assets under management, including £5bn in net new assets flowing in over the past year.