Lyxor launches SG European Quality Income ETF

Oct 7th, 2013 | By | Category: Equities

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Lyxor, the Paris-based asset manager and subsidiary of Societe Generale, has unveiled the Lyxor UCITS ETF SG European Quality Income (SGQE), an exchange-traded fund that seeks to deliver a risk profile similar to many low-volatility equity strategies with the added advantage of a higher dividend yield income.

Lyxor SG European Quality Income ETF

The new Lyxor ETF invests in some of the most stable and respected companies in Europe.

The new fund comes on the back of the success of the Lyxor UCITS ETF SG Global Quality Income (SGQL), a global equity fund based on the same underlying strategy, which has gathered almost $550 million in assets since its launch in 2012.

The fund is linked to the SG European Quality Income Net Total Return Index, a strategy index underpinned by two simple observations: one, that the largest portion of historical total returns of equity markets comes from dividend yield, and, two, that high-quality companies tend to outperform poorer quality companies.

The strategy exploits these observations via a robust multi-stage selection methodology. The starting point is a universe of European developed-market, non-financial stocks with a free-float market capitalisation of at least EUR 1 billion and 6-month average daily traded volume of at least EUR 1 million.

Stocks within this universe are then ranked according to three quantitative filters (each of which is made up of a range of ratios and measures) based on profitability, operating efficiency and balance sheet strength, with only those in the highest intervals making the grade. Of these stocks only those whose expected yield is above 4%, as determined by analysts’ consensus, are included in the final index.

The constituents are equally weighted, limited to a minimum of 25 and a maximum of 75 stocks. Currently there are 52 names in the index. It is rebalanced quarterly and historically has had an annual turnover of around 100% per annum or roughly 25% per rebalancing.

The resultant index comprises some of the most stable and respected companies in Europe, which have a proven ability to generate performance, protect capital and grow over time. For example, in the five years to 30 August 2013, the SG European Quality Income NTR Index returned +47% compared to 20.5% for the Stoxx Europe 600 NTR Index.

Andrew Lapthorne, Global Quantitative Research Strategist at Societe Generale, who helped develop the strategy, said: “Stock market fashions and trends may come and go. But buying well higher-quality companies that pay sensible and sustainable dividend yields is an investment strategy that has stood the test of time. In our opinion, such companies should form the back-bone of any sensible equity portfolio.”

The fund is listed on the London Stock Exchange and NYSE Euronext Paris and has a total expense ratio of 0.45%. The index dividend yield is currently 4.7% (as at 10 September 2013).

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