Short and Leveraged ETFs

Transcription

1 Short and Leveraged ETFs Amplify returns and protect against losses This document is for the exclusive use of investors acting on their own account and categorised either as eligible counterparties or professional clients within the meaning of markets in financial instruments directive 2004/39/ce Short and Leveraged ETFs March 2017

2 3 Press Welcome on with precision In today s fast-changing political and economic climates, it takes more sophisticated tactics to keep your portfolios on track. It is hard to say what markets might do next and whether to view the potential volatility as an opportunity or a threat. Whether you re looking to manage downside risk with tactical hedges, amplify returns with leverage, or employ a more sophisticated long/short strategy, Lyxor offers you more ways to express your views or concerns than anyone else. We launched many of the market s first leveraged ETFs, and have cemented our position as number one in Europe for UCITS compliant short and leveraged ETFs 1. Whatever the climate, we believe Lyxor s Short and Leveraged ETFs could help keep your portfolio on track. The long and short of it 4 Arnaud Llinas, Global Head of ETFs and ing Lyxor Asset Management The ins and outs of leverage 5 Take cover with Short ETFs 6 How Short ETFs work 8 How Short ETFs behave 9 Strengthen your defences 11 Double up with Leveraged ETFs 12 How Leveraged ETFs work 14 How Leveraged ETFs behave 15 Keep more of your powder dry 17 Why Short or Leveraged ETFs? 18 Comparing UCITS ETFs 20 Why choose Lyxor? 22 Knowing your risk 23 1 Source: Lyxor International Asset Management. $3.9bn in assets under management across long leveraged, short, and double short ETF exposures as of 07/12/2016.

3 5 The long and short of it The ins and outs of leverage Short and leveraged ETFs are tactical tools designed for investors seeking to either protect themselves from market falls, or amplify their returns in both rising and falling markets. Leverage also known as gearing amplifies gains and losses by a given factor. Leverage is traditionally achieved by borrowing money to increase exposure. It s hard to say where markets might go. It s simpler to say we could be in for a number of unexpected ups and downs. Whether you view potential volatility as an opportunity or a threat, Lyxor s range of short and leveraged ETFs could help. We offer three main types of strategies: Our range spans across equity and bond markets. Should European equities dive or US Treasury yields surge, we have the tools to help. Worth bearing in mind, our short and leveraged fixed income ETFs invest in futures contracts rather than the underlying bonds themselves. Here s how: An investor wishing to amplify his or her returns borrows money from a financial institution, for example a broker In return for lending out capital, the broker would charge the investor interest the borrowing cost for the period the money is lent The broker will set up a margin account, in which the investor has to keep a certain amount (typically a percentage of the total borrowed amount) The margin account affords the broker some protection should the investor default 1. Single short ETFs Single short ETFs can be used to hedge your portfolio against a market fall, or indeed profit from a downturn. They offer the inverse daily performance of their underlying indices. As an example, a 3% daily fall in the index would result in a 3% daily gain for the ETF, before fees. On the other hand, a 3% daily rise in the index would mean the ETF goes down by 3% over the same day. 2. Double short ETFs These are for the high conviction, bearish investor. The idea behind double short ETFs is similar to single shorts, but with a key difference a leverage factor of two. That means they offer twice the inverse daily performance of their benchmark. A 3% daily drop in the index would result in a 6% gain for the ETF over the same day, before fees. Conversely, a 3% daily rise would mean a loss of 6% for the ETF over the same day. 3. Leveraged ETFs These are for the high conviction, bullish investor. Leveraged ETFs amplify gains and losses by a factor of two. So a 3% daily rise in the index would offer a 6% gain for the ETF before fees over the same day, and vice versa. Daily performance before fees Single short ETF -3% +3% Double short ETF -3% +6% Leveraged ETF +3% +6% Why do it? Borrowing like this means investors can achieve a far greater outcome relative to their initial outlay. A nominal amount of combined with an equivalent borrowed amount of means your total invested exposure is twice your initial capital. Obviously this comes with added risk should markets turn against you, you would lose twice as much as compared to a direct investment in the underlying. Jargon buster Long A bullish view takes a long position to benefit from a rise in the market. In other words, being long means you want to buy the market. If markets fall, your capital is at risk. The ETF advantage When you buy a daily leveraged ETF, you don t need to worry about managing the leverage and margin account yourself. Those mechanisms and associated borrowing costs exist and are important to bear in mind, but they are reflected in the performance of the product. The onus is on the ETF manager to deliver the leveraged performance, giving you the peace of mind to focus on the exposures you want, rather than the hassle of borrowing and maintaining a margin account. Leverage A long or short leveraged position amplifies returns by a given factor. Both gains and losses are affected by this leverage factor. Leverage makes use of borrowed funds, and entails borrowing costs. A word of warning If you are adding leverage to your portfolio, you are risking twice the amount of your invested capital. This means that the magnitude of both your daily gains and losses is doubled. And, as we ll explain in more detail later on, short and leverage products held in your portfolio for any longer than a day will be exposed to compounding risk and may have a material effect negative or positive on the performance of your ETFs. Short A bearish view takes a short position to benefit from a fall in the market. In other words, being short means you want to sell the market. If markets rise, your capital is at risk. Compounding The process by which daily gains or losses are taken into account when calculating the next day s returns. Compounding can have a material impact on the performance of daily leveraged products when the holding period exceeds one day.

4 7 Take cover with Short ETFs Should you believe markets will fall on any given day, single and double short ETFs will provide a positive return (before fees). Single short ETFs provide a return of one times the daily fall, and double short ETFs multiply that return by two. There are two ways of using them in your portfolio: Manage downside risk Benefit from falling markets Hedge against falling markets Protect your investments Profit using a single short ETF Boost your potential return with a double short ETF What you should know about gains and losses A key risk of leveraged investments such as double short ETFs is that by nature, losses as well as gains are amplified. For this reason, even though you are convinced that your investment will pay off, you should be able to tolerate substantial losses over a short period of time.

5 9 How Short ETFs work How Short ETFs behave Express a different view each day Our short ETFs are designed to deliver the inverse, or twice the inverse, return of a number of benchmarks including the CAC 40, Euro Stoxx 50, 10-year bunds or US Treasuries, on a daily basis. Your profit or loss each day is determined by the direction and by how much your chosen benchmark index moves from one day to the next. The compounding effect Let s assume* our benchmark has a starting value of. By market close it has fallen 5% to 95. An associated double short ETF (also assuming a starting value of ) should be up by 10%, before fees, to 110. If by the end of the following day, the index had risen by 5% from 95 to 99.75, the short ETF would have fallen by 10% from 110 to 99. Compounding can be beneficial if a benchmark continues to go your way, but it can be very detrimental should conditions change. These three scenarios explain what could happen if markets move: Single vs. Double A single short ETF will rise by 1% for every 1% fall in a given benchmark on a given day, while a double short ETF will gain 2% for each 1% fall, before fees. Because the leverage is reset on a daily basis, if you hold these ETFs for more than a day, both gains and losses start being compounded. This means the long-term performance of short and double short ETFs can drift away from the benchmark. Day 0 Day 1 Day 2 2-day performance Over the two days, while the index has fallen by 0.25%, the short ETF has not risen twofold (i.e. by 0.5%). The ETF has actually fallen slightly because of day-to-day compounding. Something similar would happen with a single short ETF, without the doubling of returns. Long term effects Double Short ETF -5% +10% +5% -10% Compounding can lead to slippage over time between the index and the ETF. Slippage grows with the underlying index volatility, the leverage factor, and the holding period % -1% +0.5% For these reasons, single and double short ETFs may not be suitable as long-term holdings. Think about re-setting your positions frequently if your investment horizon is long. And remember that slippage can be particularly significant when markets are volatile, because the compounding of positive and negative returns can harm long-term performance. Down A continuous downward trend is the most beneficial for short and double short ETFs. Get your call right, and performance will be locked in each day with subsequent gains based on a progressively higher value. Example* The chart illustrates the benchmark continuing to fall over a six day period. The continuous light blue line represents the actual performance of a double short ETF, while the dotted light blue line represents what would happen without compounding, a theoretical return you would not receive. By the end of the period, the index has fallen by a total of 14.09%. If there was no compounding, you would expect the value of the ETF to have risen by twice that amount, i.e % before fees. However, what we actually see is a gain of 33.97% over the period, slightly higher than if there were no compounding. Over a longer period, you can see the potential benefit of compounded returns. Illustrative Double Short ETF performance in a downwards trending market* Performance (%) Day 0 Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 value Actual Double Short ETF value Theoretical DoubleShort ETF value (no compounding) *For illustrative purposes only, before fees. This is not a recommendation.

6 11 Up If the market is trending steadily upwards, your short ETF will fall in value each day. However, compounding can actually help soften the blow because losses are applied to a lower ETF price each day. Example* Over six successive days of gains, the benchmark index rises 15.96% in total. Without compounding, a double short ETF would have fallen by double that amount, i.e %, before fees. Since losses to the ETF price are locked in each day, compounding reduces the loss to %. Illustrative Double Short ETF performance in an upwards trending market* Performance (%) Day 0 Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 value Actual Double Short ETF value Theoretical DoubleShort ETF value (no compounding) Strengthen your defences If you re concerned markets might take a sudden dip and you don t want to cash in your long bond or equity positions, short ETFs can provide a useful hedge. Any loss you make on the long side is compensated by a gain on the ETF. Take the example* of an investor with a 1,000 long-only portfolio of US equities. After a strong rally in the US stock market they, like many of us would, fear a potential correction is just around the corner. Unhedged* 1,000 long 900 long Sideways This way danger lies. In a directionless, but volatile, market where the index rises and falls every day, a short ETF will generally suffer the negative effects of compounding. With every gain, the subsequent loss is applied to a larger amount. And, after any loss, the subsequent gain is based on a smaller amount. Over time this can really reduce returns. Illustrative Double Short ETF performance in a sideways trending volatile market* Performance (%) Day 0 If their fears prove well founded, their US equity allocation could fall by let s say 10% over one trading day. All else being equal, their long-only portfolio would be worth less at 900. Double Short ETF hedge* US equities -10% Day 1 Example* The table and chart show just how destructive this process can be. After six days, the index has fallen by 0.27%. If there was no compounding, the double short ETF would have been up fractionally at 0.54%. In reality, compounding has caused the ETF to fall by 1.08%. Over a longer period it would be worse. That is why short and double short ETFs are typically held for short periods. In this example, the daily leverage factor of the product is 2, but the implied leverage over the period - calculated by dividing the end return of the double short ETF by the end return of the index - is 4. Day 94 Day 0 Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 value Actual Double Short ETF value Theoretical DoubleShort ETF value (no compounding) value Daily change Actual Double Short ETF value Theoretical Double Short ETF value (no compounding) % % % % % % Total change -0.27% -1.08% +0.54% 1,000 long, 500 short = 1,500 total Day 0 US equities -10% However, had they taken some precautions, and hedged their US equity holdings with a 500 investment in a double short S&P 500 ETF, the 10% fall on the long leg would have been countered by a 20% gain on the short side which would replace the missing. They d win some, as well as lose some, but at least their portfolio would have stayed flat (before fees). 900 long, 600 short = 1,500 total Day 1 The example above is illustrative and works for a one-day investment period only. Because of compounding and resulting slippage, the investor would have to adjust their position regularly in order to maintain the exposure they want over longer investment horizons.

7 13 Double up with Leveraged ETFs Leveraged ETFs are designed to make the most of a tactical opportunity. By doubling your exposure to a given index, you open the door to twice the return positive or negative. There are two main ways of using them in your portfolio: Amplify returns Preserve investment capital Asset class or index is positive Double your returns Deploy less capital Free up money to use elsewhere What you should know about gains and losses A key risk of leveraged investments is that by nature, losses as well as gains are amplified. For this reason, even though you are convinced that your investment will pay off, you should be able to tolerate substantial losses over a short period of time.

8 15 How leveraged ETFs work How Leveraged ETFs Behave Express a different view each day A leveraged ETF is designed to exploit rising markets. It will rise by 2% for every 1% rise in an index on a given day, before fees. Leveraged ETFs are limited to two times leverage in order to stay within the rules of UCITS regulations. Any more than that, it s not a UCITS ETF. The compounding effect Consider the example below*. If an index starts with a value of and closes the day up 4%, a leveraged ETF (also assuming a starting value of ) should be up by 8%, before fees double the return. Leveraged ETF * Just like the short ETFs described earlier, leveraged ETFs undergo the same compounding effect, which can either work for you or against you. These three scenarios explain how: Daily compounding As with all our short ETFs, the performance of leveraged ETFs is calculated daily, meaning they are subject to the same compounding issues. As a result of this daily leverage reset, if you hold these ETFs for more than a day, both gains and losses start being compounded. This means the long-term performance of leveraged ETFs can drift away from the benchmark. Day 0 Day 1 Day 2 +4% 104-3%.9 If by the end of the following day, the index has fallen 3% from 104 to.9, the ETF would be down 6% to So over the two day period, while the index has risen by 0.9%, the leveraged ETF is up by just 1.5% because of the compounding. Long-term results Compounding can lead to slippage over time between the index and the ETF. Slippage grows with the underlying index volatility, the leverage factor, and the holding period. +8% 108-6% % +1.5% +1.8% Down A market trending downwards continuously is bad news for a leveraged ETF. Each day the benchmark falls, the leveraged ETF will double your loss. Compounding softens the blow, as every day the loss is applied to a smaller ETF value. Example* The chart shows an index falling by a total of 14.9% over a six day period. The continuous light blue line represents the actual performance of a leveraged ETF, while the dotted light blue line represents what would happen without compounding, a theoretical return you would not receive. If there were no compounding, the associated leveraged ETF would have fallen by twice that amount, 28.19%, before fees. Illustrative Leveraged ETF performance in a downwards trending market* Performance (%) Day 0 Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 value Actual Leveraged ETF value Theoretical Leveraged ETF value (no compounding) For these reasons, leveraged ETFs may not be suitable as long-term holdings. Think about re-setting your positions frequently if your investment horizon is long. And remember that slippage can be particularly significant when markets are volatile, because the compounding of positive and negative returns can harm long-term performance. In reality, changes in the ETF price are based on the previous day s closing price, meaning that the compounding reduces the loss to 26.51%.

9 17 Up Get your timing right, and a continuous upward trend could be a very beneficial scenario. This is because leveraged ETFs lock in their performance each day and subsequent gains are based on a progressively higher value. With every daily gain in the index, the ETF will rise twice as fast. Example* The chart shows an index rising for six successive days to close 15.96% up. Without compounding, an ETF investor could expect twice that return (31.92%). However, daily compounding enhances returns slightly, leading to a final gain of 33.97%. Illustrative Leveraged ETF performance in an upwards trending market* Performance (%) Day 0 Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 value Actual Leveraged ETF value Theoretical Leveraged ETF value (no compounding) Keep more of your powder dry If you are convinced markets will rise, a leveraged ETF can bring you twice the potential returns. But they can be used in a more conservative way, to reduce the amount of capital you put at risk on any given day. A conventional ETF investment For example*, if you want to allocate 1,000 to eurozone equities because you expect them to bounce back you could invest in a regular Euro Stoxx 50 ETF. If you re right, and European equities rise by 10%, you will have locked in a healthy gain before fees. Standard ETF* Sideways This way danger lies for leveraged ETFs. In a directionless but volatile market where the index rises and falls every day, a leveraged ETF will generally suffer more than the index. With every gain, the subsequent loss is applied to a larger amount, and after any loss, the subsequent gain is based on a smaller amount. Over time, this can really reduce returns. Example* The table and chart show just how destructive this process can be. Over six days of choppy returns, the index has posted a modest loss of 0.27%. Without compounding, a leveraged ETF would be down 0.54%. In reality, compounding causes the ETF to fall by 1.08%. Over the long term it would be worse. That is why leveraged ETFs are typically held for short periods. In this example, the daily leverage factor of the product is 2, but the implied leverage over the period - calculated by dividing the end return of the leveraged ETF by the end return of the index - is 4. Illustrative Leveraged ETF performance in a sideways trending volatile market* Performance (%) Day Day 0 Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 value Actual Leveraged ETF value Theoretical Leveraged ETF value (no compounding) value Daily change Actual Leveraged ETF value Theoretical Leveraged ETF value (no compounding) % % % % % % Total change -0.27% -1.08% -0.54% 1,000 Euro Stoxx 50 ETF Euro Stoxx 50 index +10% A leveraged ETF investment You could however have achieved a similar result by investing just 500 in a 2x Leveraged Euro Stoxx 50 ETF. Here the 10% increase in the Euro Stoxx 50 yields a 20% gain in the ETF. By investing 500, your return is, the same as the traditional ETF. It works the other way too, if the Euro Stoxx 50 fell, the loss suffered on each option would be the same. 2x Leveraged ETF* ,000 Day x Leveraged Euro Stoxx 50 ETF 500 Other investments Day 0 Euro Stoxx 50 index +10% The compounding effect A word of caution at this point: if the Euro Stoxx 50 took more than a day to achieve its 10% gain, which is likely to be the case, your return on the leveraged ETF could have drifted a little due to the compounding effect, and could be higher or lower than , Euro Stoxx 50 ETF Day x Leveraged Euro Stoxx 50 ETF Day 1

10 19 Why Short or Leveraged ETFs? There are numerous benefits of using ETFs over other short or leveraged products, but also some wariness. One of the most important features of our range is that unlike similar exchange traded products that are merely UCITS eligible, our ETFs are fully UCITS compliant, which means they are subject to stricter regulation. Limited risk There are many other advantages to taking the Short or Leveraged ETF route with Lyxor. Liquidity Our ETFs are supported by a robust network of authorised participants and market makers, and benefit from both primary and secondary market liquidity. Transparency Our funds track transparent indices meaning you know exactly what kind of exposure you re getting, and you can buy and sell them with full transparency around price. Unlike other leveraged products such as Contracts For Difference (CFDs) and spread bets, you will never lose more than you invest, which means you can manage your risk more precisely. Simplicity Ordinarily, going short or leveraging your returns can be costly and complex, whereas buying an ETF is a simple trade. Low cost With management fees starting at just 0.20%, our range of short and leveraged ETFs offer competitive access to a wide range of equity and fixed income indices. What is UCITS? UCITS Undertakings for the Collective Investment of Transferable Securities is a framework set up by the European Commission with the goal of harmonising the distribution of investment funds in Europe, and protecting you, the investor. UCITS funds must adhere to strict regulatory requirements around transparency and quality. Those requirements include complete transparency around fees, disclosures on counterparty risk, and profits generated from efficient portfolio management techniques, meaning you can trade with confidence and peace of mind.

11 21 Comparing UCITS ETFs We believe ETFs offer the most secure path to short and leveraged exposures, but there are other instruments available that steer you down a similar path. They are not however restricted by UCITS requirements. Comparing UCITS ETFs with other short and leveraged instruments UCITS ETFs UCITS eligible ETPs Warrants and certificates Futures contracts Spread bets and CFDs UCITS eligible ETPs Exchange Traded Products (ETPs) generally fall into two categories: Exchange Traded Commodities/Currencies (ETCs) and Exchange Traded Notes (ETNs). While ETCs track the performance of commodity markets or currencies and are secured debt securities, ETNs track a wide range of indices and are issued by a bank as unsecured debt products. Both ETC and ETNs may be UCITS eligible, meaning they may be used within a UCITS fund, but they are not themselves UCITS compliant, and are not subject to the same level of rigour imposed by the UCITS directive. They do however allow for higher leverage factors, such as 3x or 5x. Futures contracts Futures contracts are a type of financial derivative traded on futures exchanges that provide exposure to a variety of assets and indices. The buyer of a future is long and has the obligation to buy a given asset at a given price on a predetermined date (the seller who is short the position has a similar obligation to sell). Over the lifetime of the contract, each party usually posts collateral (a margin equivalent to a percentage of the contract s value) to protect themselves in case of the other defaulting. Most of the time, there is no physical change of assets at contract expiry settlement is usually done by cash. While futures markets can benefit from high liquidity, trading of futures is more complex than buying an ETF, and is generally restricted to professional investors only. UCITS compliant funds? Yes No No No No Leverage factor Maintenance of margin account by the investor? Losses limited to Initial investment? Traded on public exchanges? Between -2x and +2x No limit No limit No limit No limit No No No Yes Yes Yes Yes Yes No No Yes Yes Can be Multiple market makers? Yes Yes Usually not but can be Futures exchanges Yes No No Warrants and certificates Spread bets and CFDs Collateralised? Yes, within strict UCITS guidelines Usually but not always No No No Warrants and certificates are types of debt securities issued by a single financial institution. They usually aren t collateralised, and they may or may not be listed on public exchanges. If they are exchange traded, they are often supported by a single market maker, the issuing entity of the product. Like call and put options, warrants can be useful tools to speculate on market movements for leveraging or hedging purposes. They may have increased credit and liquidity risk compared to ETFs, as the holder is dependent on both the creditworthiness of the issuer and its ability to make continuous markets on the product. As with UCITS eligible ETPs, warrants and certificates can provide far greater leverage than UCITS ETFs. Spread bets and CFDs are similar in that they both offer the ability to speculate on the movement of an asset price. The buyer of a spread bet or CFD is long a position and benefits if its value rises, while the seller is short and would want the asset to fall. Depending on the magnitude of the price change and the amount of leverage, these instruments can rise or fall in value significantly, and by more than the initial investment. This means investors are theoretically exposed to unlimited losses if the asset price moves against them. Neither spread bets nor CFDs are traded on exchange, and they are not collateralised. One benefit they do offer is the ability to leverage investments to very high levels, sometimes exceeding x.

12 23 Why choose Lyxor? Knowing your risk 17 ways to go short and 9 ways to amplify long returns across equity and fixed income exposures. 1 The largest range of short, double short and leveraged ETFs in Europe by number of exposures and assets under management. 1 The first in Europe to launch double short ETFs in 2007, and leveraged ETFs in Equities Fixed Income* One of the largest and among the most liquid providers of ETFs in Europe. 3 No other European provider has been running ETFs as long as we have. 4 A consistent track record in delivering secure, liquid and precise tracking. Leveraged Single Short Double Short United States S&P 500 (DSP5) Europe: Euro Stoxx 50 (BXX) Italy MIB (XBRMIB) Germany: DAX (DSD) Germany: Bunds (BUNS) United States: Treasuries (DSUS) United States: Treasuries (US1S) *Short and double short fixed income ETFs invest in futures contracts rather than the underlying bonds themselves. It is important for potential investors to evaluate the risks described below and in the fund prospectus on our website Capital at risk ETFs are tracking instruments: Their risk profile is similar to a direct investment in the Underlying index. Investors capital is fully at risk and investors may not get back the amount originally invested Replication risk The fund objectives might not be reached due to unexpected events on the underlying markets which will impact the index calculation and the efficient fund replication. Counterparty risk Investors are exposed to risks resulting from the use of an OTC swap with Société Générale. In-line with UCITs guidelines, the exposure to Société Générale cannot exceed 10% of the total fund assets. Physically replicated ETFs may have counterparty risk resulting from the use of a securities lending programme. Leverage Risk Leveraged products amplify both gains and losses by a given leverage factor. Losses can therefore potentially be substantial. Compounding Risk The performance of single short, double short and leveraged ETFs is calculated on a daily basis. This means there is a compounding effect as the daily return will always be based on the previous day s closing price. Compounding can thus lead to slippage over time between the index and the ETF, meaning single short, double short and leveraged ETFs may not be suitable as long-term holdings. Underlying risk The underlying index of a Lyxor ETF may be complex and volatile. When investing in commodities, the Underlying index is calculated with reference to commodity futures contracts exposing the investor to a liquidity risk linked to costs such as cost of carry and transportation. ETFs exposed to Emerging Markets carry a greater risk of potential loss than investment in Developed Markets as they are exposed to a wide range of unpredictable Emerging Market risks. Currency risk ETFs may be exposed to currency risk if the ETF is denominated in a currency different to that of the Underlying index they are tracking. This means that exchange rate fluctuations could have a negative or positive effect on returns. Liquidity risk Liquidity is provided by registered market-makers on the respective stock exchange where the ETF is listed, including Société Générale. On exchange, liquidity may be limited as a result of a suspension in the underlying market represented by the underlying index tracked by the ETF; a failure in the systems of one of the relevant stock exchanges, or other market-maker systems; or an abnormal trading situation or event. 1 Source: Lyxor International Asset Management. $3.9bn in assets under management across long leveraged, short, and double short ETF exposures as at 07/12/ Source: First double short ETF launched by Lyxor in Europe in January 2007 (Lyxor CAC 40 Daily Double Short UCITS ETF). First leveraged ETF launched by Lyxor in Europe in June 2006 (Lyxor DAILY LevDAX UCITS ETF). 3 Source: Lyxor International Asset Management. $53.9bn in assets under management as at 12/12/2016. Source for liquidity data: Bloomberg, over period 30/11/2015 to 30/11/ Source: Lyxor International Asset Management. First Lyxor ETF launched in Europe in December 2000 (Lyxor CAC 40 UCITS ETF).

13 Important information This communication is exclusively directed and available to Institutional Investors as defined by the 2004/39/EC Directive on markets in financial instruments acting for their own account and categorised as eligible counterparties or professional clients. This communication is not directed at retail clients. 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In addition, the shares are not registered under the U.S Securities Act of 1933 and may not be directly or indirectly offered or sold in the United States (including its territories or possessions) or to or for the benefit of a U.S Person (being a United State Person within the meaning of Regulation S under the Securities Act of 1933 of the United States, as amended, and/or any person not included in the definition of Non-United States Person within the meaning of Section 4.7 (a) (1) (iv) of the rules of the U.S. Commodity Futures Trading Commission.). No U.S federal or state securities commission has reviewed or approved this document and more generally any documents with respect to or in connection with the fund. Any representation to the contrary is a criminal offence. This document is of a commercial nature and not of a regulatory nature. This document does not constitute an offer, or an invitation to make an offer, from Société Générale, Lyxor Asset Management (together with its affiliates, Lyxor AM) or any of their respective subsidiaries to purchase or sell the product referred to herein. These funds include a risk of capital loss. The redemption value of this fund may be less than the amount initially invested. The value of this fund can go down as well as up and the return upon the investment will therefore necessarily be variable. In a worst case scenario, investors could sustain the loss of their entire investment. This document is confidential and may be neither communicated to any third party (with the exception of external advisors on the condition that they themselves respect this confidentiality undertaking) nor copied in whole or in part, without the prior written consent of Lyxor AM or Société Générale. The obtaining of the tax advantages or treatments defined in this document (as the case may be) depends on each investor s particular tax status, the jurisdiction from which it invests as well as applicable laws. This tax treatment can be modified at any time. We recommend to investors who wish to obtain further information on their tax status that they seek assistance from their tax advisor. The attention of the investor is drawn to the fact that the net asset value stated in this document (as the case may be) cannot be used as a basis for subscriptions and/or redemptions. The market information displayed in this document is based on data at a given moment and may change from time to time. Authorizations: Lyxor International Asset Management (Lyxor AM) is a French management company authorized by the Autorité des marchés financiers and placed under the regulations of the UCITS (2009/65/EC) and AIFM (2011/61/EU) Directives. Société Générale is a French credit institution (bank) authorised by the Autorité de contrôle prudentiel et de résolution (the French Prudential Control Authority Contact information +44 (0) info@lyxoretf.co.uk