Ride the wave. Eurozone Equity ETFs

Transcription

1 Ride the wave Eurozone Equity ETFs 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 Index Insights June 2017

2 Lyxor ETF Eurozone Equity ETFs A place of greater safety? Our key calls 4 Broad European equities still room to run 6 Single countries evolving opportunities 10 Mid-caps The next layer 12 Sectors digging deeper 14 Product snapshot 16 Lyxor International Asset Management ( LIAM ) or its employees may have or maintain business relationships with companies covered in its research reports. As a result, investors should be aware that LIAM and its employees may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Please see appendix at the end of this report for the analyst(s) certification(s), important disclosures and disclaimers. Alternatively, visit our global research disclosure website

3 3 Welcome Despite a packed political calendar, broad European indices are up around 15%* over the last six months. They are now close to the multi-year peaks they reached in 2000, 2007 and 2015 before they subsequently corrected. This time around the improving economic and political situation (on the mainland at least), attractive relative valuations and a degree of under-allocation by investors should keep the bears from the door. The euro's new found strength means it could, however, be time to dig that little bit deeper for more domestic-related opportunities. The key events March 15: Rutte wins Dutch election March 29: Brexit triggered April 23 & May 7: Macron wins in France June 8: Hung parliament in the UK September 24: German elections Q3 - Q4: Snap elections in Italy? * Source: SG Research, 1 June 2017.

4 Lyxor ETF Eurozone Equity ETFs Our key calls Broad equities A brighter outlook than the US and UK Single countries Following different paths Euro Stoxx 50 Euro Stoxx 300 Stoxx Europe 600 MSCI Europe MSCI EMU range CAC 40 France realises its catch up potential FTSE MIB Italy benefits from significant exposure to banks IBEX 35 a better beta play on recovery FTSE 100 prepare for Brexit pain

5 5 Mid-caps Domestic markets win out STOXX 600 sectors Reflation trades, currency beneficiaries CAC Mid 60 strong euro & tax reforms provide support MDAX domestic revenue generator IBEX Mid fuelled by consumption and capex Banks cheap, pure way to play reflation Construction & Materials post-election spending increases Retail eurozone consumers are increasingly confident Automobiles & Parts eurozone consumption climbs Oil & Gas key reflation trade, well valued Basic Resources deep value, brighter outlook

6 Lyxor ETF Eurozone Equity ETFs Broad European equities Still room to run Where equity markets go next is hard to call, given valuations generally look extended. The eurozone could be a place of greater safety now political risk has eased somewhat. Less demanding valuations, continued ECB support and earnings improvements are powerful drivers. The pick-up in global trade bodes well. European Equity indices overview Defensive Cyclical MSCI EMU Small Cap MSCI EMU Value Euro Stoxx 300 MSCI EMU Growth Euro Stoxx 50 Stoxx Europe 600 MSCI Europe Source: Lyxor International Asset Management. Data as at 15 June Key points Recovery factors like low size and value play very firmly to recovery. Should you wish to tilt towards small caps or value stocks, consider the MSCI EMU Small Cap and MSCI Value indices, respectively Financials the MSCI EMU Value offers a high Financials weighting Did you know? Fewer than 1 in 5 managers outperformed broad European indices in the 12 months to end March 2017*. * Source: Lyxor ETF Research, Bloomberg. 12 months to end March 2017.

7 7 Breakdown of revenues Africa and Middle East Latin America North America Asia Oceania EU MSCI Europe Stox x 600 Eurostox x 300 MSCI EMU Source: Factset. Data as at 15 June Key points Diversification vs. concentration the MSCI Europe offers a wide exposure to the Continent. The Euro Stoxx 50 has a 70% exposure to Germany and France should you favour the core. Island isolation should the political uncertainty in the UK be of concern, the Euro Stoxx 50 and MSCI EMU indices have far less exposure to the UK than the MSCI Europe Did you know? Lyxor has cut fees to 0.07% on its Euro Stoxx 50 (Acc.), Euro Stoxx 300 and Stoxx Europe 600 ETFs.** **Source: Lyxor ETF, 12 June 2017.

8 Lyxor ETF Eurozone Equity ETFs The numbers that matter Index Number of stocks Cap Breakdown Top 3 sectors Top 3 countries 2016 Return (EUR) 5 Yr Return (EUR) EURO STOXX 50 Net Return EUR % 30bn 9.10% 10-30bn 22.1% Financials 14.4% Industrials 11.3% Consumer discretionary 35.82% France 33.34% Germany 10.90% Spain 3.72% 64.66% MSCI Europe Net Return EUR Index % 30bn 24.89% 10-30bn 10.26% 5-10bn 19.9% Financials 13.9% Consumer Staples 13.4% Industrials 24.46% UK 16.01% France 14.96% Germany 2.58% 66.69% MSCI EMU Small Cap Net Return EUR Index % 5-10bn 49.73% 2-5bn 21.66% 1-2bn 22.6% Industrials 13.7% Financials 12.7% Consumer Discretionary 24.92% Germany 16.39% France 15.47% Italy 3.26% % MSCI EMU Value Net Return EUR Index % 30bn 24.81% 10-30bn 5.58% 5-10bn 36.7% Financials 10.5% Industrials 10.2% Consumer Discretionary 31.88% France 27.55% Germany 15.33% Spain 6.89% 67.02% MSCI EMU Growth Net Return EUR Index % 30bn 34.01% 10-30bn 9.38% 5-10bn 20.4% Consumer Staples 20.1% Industrials 17.4% Consumer Discretionary 31.10% France 31.09% Germany 11.58% Netherlands 1.49% 84.06% EURO STOXX Net Return EUR % 30bn 28.85% 10-30bn 8.78% 5-10bn 20.1% Financials 16.1% Industrials 14.1% Consumer Discretionary 31.57% France 28.90% Germany 10.32% Spain 4.15% 76.71% STOXX Europe 600 (Net Return) EUR % 30bn 23.92% 10-30bn 11.33% 5-10bn 20.1% Financials 14.2% Industrials 13.5% Health Care 25.47% UK 15.92% France 14.65% Germany 1.73% 70.62% Source: Lyxor International Asset Management. Data period as at 15 June Past performance is not a reliable indicator of future returns. How European markets have performed over the last year 3% Trending up MSCI EMU Small-Cap 2% One month performance 1% 0% (1)% FTSE Developed Europe Minimum Variance MSCI EMU GROWTH Euro STOXX MSCI EMU VALUE (2)% MSCI Europe Euro STOXX 50 Reversing down STOXX Europe 600 0% 5% 10% 15% 20% 25% 30% 35% One year performance Source: Lyxor International Asset Management. Data from 6 June Past performance is not a reliable indicator of future returns.

9 9 Which route will you take? I think European equities are much better value than their US peers MSCI Europe, Euro STOXX, STOXX Europe 600 Euro STOXX 50 I like the eurozone. I'm not so sure about post-election UK Growth means I want more specific, cyclical exposures MSCI EMU Value FTSE MSCI Developed EMU Europe Small-Caps Min Var I m expecting small-caps to benefit I think the earnings outlook for European companies is bright. I favour growth at this stage MSCI EMU Growth Did you know? European equities are trading at a 46%discount to their US peers (in P/BV terms) *Source: SG Equity Research, 1 June 2017 Why Lyxor for European equities? % #1STOXX 300 ETF** Over 15 ways to explore broad European markets* Lowest-cost broad European exposures* Most efficient Euro *Source: Lyxor International Asset Management/Bloomberg. Data as at 15 June **Source: Lyxor International Asset Management/Bloomberg. Data period from 12 months to 31 May The rationale and construction of the indicator are detailed in an academic paper published by Thierry Roncalli, former Head of Research & Development at Lyxor and Professor of Finance at the Evry University, and Marlene Hassine Konqui, ETF strategist. The academic paper can be downloaded from SSRN: or from REPEC

10 Lyxor ETF Eurozone Equity ETFs Single countries Evolving opportunities Better economic momentum, inflation expectations picking up and more fiscal easing should support single country exposures, but the euro's new found strength calls for more selectivity than we've seen so far. Some countries will be more affected than others, especially those like the DAX, which get the majority of their revenues from exports overseas. Markets like the CAC, IBEX and MIB are less reliant on international trade (getting 57%, 61% and 60% of their revenues from the EU respectively, according to Factset).* How country indices have performed over the last year 3% Trending up 2% FTSE 100 One month performance 1% 0% DAX IBEX 35 (1)% (2)% CAC 40 Euro Stoxx 50 Reversing down FTSE MIB 0% 5% 10% 15% 20% 25% 30% 35% One year performance Source: Lyxor International Asset Management. Data from 6 June Past performance is not a reliable indicator of future returns. Did you know? Fewer than 1 in 10 managers outperformed the CAC 40 over the 12 months to 31 March 2017.** *Source: Lyxor International Asset Management. Data as at 31 March **Source: Lyxor ETF Research, Bloomberg, 12m to end March 2017.

11 11 Single country sector breakdown 40% 35% 30% 25% 20% 15% 10% 5% 0% Consumer Discretionary Consumer Staples Energy Financials HealthCare Industrials Information Technology Materials Real Estate Telecommunication Services CAC 40 Total Return Index DAX Index FTSE MIB Net Total Return Index IBEX 35 Net Return Index Source: Lyxor International Asset Management. Data as at 15 June Utilities The numbers that matter Index name Number Domestic Exposure of stocks Revenues Top 3 sectors Weight Market Cap 2-5bn 5-10bn 10-30bn 30bn CAC 40 Total Return Index 40 French large caps 57.4% 17.9% Consumer Discretionary 16.7% Industrials 14.7% Financials 0.00% 0.00% 24.69% 75.31% DAX INDEX 30 German large caps 49.2% 17.9% Consumer Discretionary 15.9% Health Care 15.8% Financials 0.00% 1.70% 16.51% 81.78% FTSE MIB Net Total Return Index 40 Italian large caps 59.7% 36.7% Financials 16.7% Energy 15.3% Utilities 10.02% 10.57% 36.93% 42.47% IBEX 35 Net Return Index 35 Spanish large caps 60.9% 34.1% Financials 14.3% Utilities 14.3% Industrials 4.67% 4.39% 38.42% 52.17% Source: Lyxor, Factset. June Data as at 15 June Why Lyxor for Single countries? yrs 12 ways to explore European countries* Largest ETFs in Europe on the CAC 40, FTSE MIB and IBEX 35* Lengthy experience managing single country ETFs* *Source: Lyxor International Asset Management. Data as at 15 June First single country ETF launched 13/12/2000 (Lyxor CAC 40 (DR) UCITS ETF).

12 Lyxor ETF Eurozone Equity ETFs Mid-caps The home front Germany s MDAX index generates almost 60% of its revenue from the EU, while for France s CAC Mid-60, that number is higher again at around 70%*. Macron s potential tax cuts could add further support and, unlike some European assets, French assets haven t overshot yet. Mid-cap index revenues are mainly generated in the EU FTSE % CAC MID % MDAX 59.53% * Source: Lyxor, Factset, 5 June How European mid-caps have performed over the last year 7% 6% Trending up 5% 4% One month performance 3% 2% 1% 0% (1)% FTSE UK Mid Cap Index FTSE Germany Mid Cap Index FTSE France Mid Cap Index FTSE Italy Mid Cap Index (2)% (3)% (4)% Reversing down FTSE Spain Mid Cap Index 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% One year performance Source: Lyxor International Asset Management. Data from 6 June Past performance is not a reliable indicator of future returns.

13 13 The numbers that matter Index name CAC Mid 60 Gross Return Index Number of stocks 60 Exposure French mid caps Overweight of cyclicals vs. large cap index Weight Market Cap 150m-1bn 1-2bn 2-5bn 5-10bn 10-30bn 30bn 16.80% 0.94% 5.75% 34.30% 45.06% 13.95% 0% MDAX PERF INDEX 50 German mid caps 18.90% 0% 4.56% 18.33% 38.75% 28.32% 10.03% IBEX Medium Cap Net Return 20 Spanish mid caps 16.80% 2.44% 26.97% 70.59% 0% 0% 0% Source: Lyxor International Asset Management. Data as at 15 June Large cap benchmarks used for comparison are the CAC 40, DAX, and IBEX 35 indices. Key points If recovery prospects harden further, look to mid cap indices for their higher weightings toward cyclical sectors like financials and industrials All of our single country mid-cap exposures have at least a 16% higher exposure to cyclicals than their large-cap equivalents Mid-caps aren t always as volatile as their reputation suggests. The MDAX and CAC Mid-60 have been marginally less volatile than their large-cap peers since the 2008 financial crisis. Did you know? On average, fewer than 1 in 4 managers outperformed large- and mid-cap single country indices over the 12 months to 31 March 2017.* * Source: Lyxor ETF Research, Bloomberg, 12m to end March Why Lyxor for mid-caps? 5 #1 We have 5 ways to access European mid-caps The only CAC Mid 60 and IBEX Medium Cap ETFs on the market 1 Among the oldest and lowest cost ETFs in Europe 2 1 Source: Lyxor International Asset Management. Data as at 15 June Lyxor CAC Mid 60 UCITS ETF launched 13/05/2011.

14 Lyxor ETF Eurozone Equity ETFs Sectors Digging deeper Better data and a ramp up in infrastructure spending should support sectors like Banks and Construction & Materials, both of which generate most of their revenues domestically. Banks in particular represent a cheap way to play eurozone reflation. Rampant consumer confidence and the stronger employment picture should help the retail and autos & parts sectors finally ride the wave of European markets. How European sectors have performed over the last year 5% 4% Utilities Trending up 3% One month performance 2% 1% 0% (1)% (2)% Real Estate Food & Beverage Construction & Materials Basic Resources (3)% (4)% Retail Reversing down Oil & Gas 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% One year performance Source: Lyxor International Asset Management. Data from 6 June Past performance is not a reliable indicator of future returns. Auto & Parts Banks Did you know? All eurozone sectors are currently cheaper than their US peers.* * Source: SG Research, 1 June 2017.

15 15 The numbers that matter Index EURO STOXX Banks Net Return EUR STOXX Europe 600 Banks Net Return EUR STOXX Europe 600 Retail (Net Return) EUR STOXX Europe 600 Basic Resources Net Return EUR STOXX Europe 600 Construction & Materials (Net Return) EUR STOXX Europe 600 Oil & Gas (Net Return) EUR STOXX Europe 600 Automobiles & Parts (Net Return) EUR Number of stocks Top 3 countries Cap breakdown 2016 return (EUR) 5yr return (EUR) 31.84% Spain 24.58% France 16.52% Italy 30.12% UK 16.13% Spain 12.45% France 30.68% UK 18.78% Spain 16.24% France 28.12% UK 14.57% Switzerland 13.66% Australia 35.03% France 21.24% Switzerland 12.95% Sweden 29.47% France 21.98% UK 15.92% Netherlands 60.62% Germany 26.49% France 6.84% UK Source: Lyxor International Asset Management. Data as at 15 June % 30bn 14.80% 10-30bn 3.83% 5-10bn 75.25% 30bn 20.00% 10-30bn 2.18% 5-10bn 34.56% 30bn 27.48% 10-30bn 26.20% 5-10bn 48.95% 30bn 27.60% 10-30bn 18.25% 5-10bn 27.53% 30bn 57.47% 10-30bn 10.09% 5-10bn 74.90% 30bn 17.72% 10-30bn 2.11% 5-10bn 55.28% 30bn 35.16% 10-30bn 6.06% 5-10bn -4.60% Percentage of STOXX 600 companies within 10% of their historical highs on 1y and 10y horizon 100% 1 year 10 years 80% 60% 40% 20% 0% Telecom Chems. Constr. Mat. Food & Bev Fin. Svces P&Hh Gds Utili Tech Autos Banks Ind. G&S Healthcare Insurance STOXX 600 Travel Media Retail Real Estae Oil & Gas Basic Res Source: Bloomberg. SG Cross Asset Research/Equty Strategy, 1 June Why Lyxor for Equity sectors? #1 Over a decade of experience managing sector ETFs* 20 ways to explore European sectors* Most efficient, lowest cost banks ETF in Europe* *Source: Lyxor International Asset Management. Data refers to the Lyxor Euro STOXX Banks UCITS ETF. Data as at 15 June 2017.

16 Lyxor ETF Eurozone Equity ETFs Product Snapshot Explore all that Europe has to offer ETF name ISIN Main Ticker TER (bps) Income AUM ( M) Base currency Benchmark currency Bloomberg benchmark Broad Equities Lyxor EURO STOXX 50 (DR) UCITS ETF LU MSED FP 7 Acc. 101 EUR EUR SX5T EURO STOXX 50 (DR) FR MSE FP 20 Dist 8,353 EUR EUR SX5T MSCI Europe FR MEU FP 25 Dist 1,981 EUR EUR M7EU MSCI EMU Growth FR GWT FP 40 Dist 53 EUR EUR M7EM000G MSCI EMU Value FR VAL FP 40 Dist 259 EUR EUR M7EM000V MSCI EMU Small Cap FR MMS FP 40 Dist 362 EUR EUR M7EMSC Euro Stoxx 300 (DR) LU MFED FP 7 Acc 96 EUR EUR SXXT Stoxx Europe 600 (DR) LU MEUD FP 7 Acc 162 EUR EUR SXXR Single countries: standard & leverage CAC 40 (DR) FR CAC FP 25 Dist 5,030 EUR EUR CACR DAX (DR) LU DAX FP 15 Acc 1,102 EUR EUR DAX FTSE MIB FR MIB FP 35 Dist 951 EUR EUR FTSEMIBN IBEX 35 (DR) FR LYXIB SM 30 Dist 970 EUR EUR IBEXNR FTSE 100 FR L100 FP 15 Acc 853 GBP EUR TUKXG Mid-caps & Sectors CAC Mid 60 FR CACM FP 50 Dist 123 EUR EUR CM1GR German Mid-Cap MDAX FR MD4X GY 40 Dist 105 EUR EUR MDAX IBEX Mid FR IBXM SM 50 Dist 2 EUR EUR IBEXCN STOXX Europe 600 Automobiles & Parts FR AUT FP 30 Acc 52 EUR EUR SXAR STOXX Europe 600 Banks FR BNK FP 30 Acc 818 EUR EUR SX7R STOXX Europe 600 Basic Resources STOXX Europe 600 Construction & Materials FR BRE FP 30 Acc 280 EUR EUR SXPR FR CST FP 30 Acc 46 EUR EUR SXOR STOXX Europe 600 Oil & Gas FR OIL FP 30 Acc 279 EUR EUR SXER STOXX Europe 600 Retail FR RTA FP 30 Acc 15 EUR EUR SXRR Source: Lyxor ETF, 1 June 2017.

17 We ve scaled new heights. Thank you for making us Europe s 2nd largest ETF issuer *. As one of Europe s first ever ETF providers, we ve consistently pioneered new products and pushed quality and performance higher for investors. We ve reached the number 2 spot, but our aim s higher. Thank you for driving us on. The original pioneers. lyxoretf.com This communication is for professional clients only. 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/EC. These products comply with the UCITS Directive (2009/65/EC). Lyxor International Asset Management (Lyxor ETF) recommends that investors read carefully the investment risks section of the product s documentation (prospectus and KIID). The prospectus and KIID in English are available free of charge on and upon request to client-services-etf@lyxor.com. Lyxor International Asset Management (Lyxor AM), société par actions simplifiée having its registered office at Tours Société Générale, 17 cours Valmy, Puteaux (France), RCS Nanterre, is authorized and regulated by the Autorité des Marchés Financiers (AMF) under the UCITS Directive and the AIFM Directive (2011/31/EU). Lyxor ETF is represented in the UK by Lyxor Asset Management UK LLP, which is authorised and regulated by the Financial Conduct Authority in the UK under Registration Number *Source: Lyxor International Asset Management / Bloomberg. Data refers to Assets Under Management and is correct as of May, 2017.

18 Lyxor ETF Eurozone Equity ETFs Knowing your risk 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. Concentration Risk Smart Beta ETFs select stocks or bonds for their portfolio from the original benchmark index. Where selection rules are extensive it can lead to a more concentrated portfolio where risk is spread over fewer stocks than the original benchmark. 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. Leverage Risk Leveraged products amplify both gains and losses by a given leverage factor. Losses can therefore potentially be substantial. 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.

19 19 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. This document is issued in the UK by Lyxor Asset Management UK LLP, which is authorized and regulated by the Financial Conduct Authority in the UK under Registration Number Some of the funds described in this brochure are sub-funds of either Multi Units Luxembourg or Lyxor Index Fund, being both investment companies with Variable Capital (SICAV) incorporated under Luxembourg Law, listed on the official list of Undertakings for Collective Investment, and have been approved and authorised by the CSSF under Part I of the Luxembourg Law of 17th December 2010 (the 2010 Law ) on Undertakings for Collective Investment in accordance with provisions of the Directive 2009/65/ EC (the 2009 Directive ) and subject to the supervision of the Commission de Surveillance du Secteur Financier (CSSF). Alternatively, some of the funds described in this document are either (i) French FCPs (fonds commun de placement) or (ii) sub-funds of Multi Units France a French SICAV, both the French FCPs and sub-funds of Multi Units France are incorporated under the French Law and approved by the French Autorité des marchés financiers. Each fund complies with the UCITS Directive (2009/65/CE), and has been approved by the French Autorité des marchés financiers. Société Générale and Lyxor AM recommend that investors read carefully the risk factors section of the product s prospectus and Key Investor Information Document (KIID). The prospectus and the KIID are available in French on the website of the AMF ( The prospectus in English and the KIID in the relevant local language (for all the countries referred to, in this document as a country in which a public offer of the product is authorised) are available free of charge on lyxoretf.com or upon request to client-services-etf@ lyxor.com. 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