Lyxor’s new ‘quality income’ ETF offers balance between quality and yield

Oct 22nd, 2012 | By | Category: Equities

Lyxor has listed a new exchange-traded fund (ETF) on the NYSE Euronext that aims to deliver bond-like features along with equity-like performance.

Lyxor's new ‘quality income’ ETF offers balance between quality and yield

The Lyxor ETF SG Quality Income is based on Societe Generale’s Quality Income Strategy Index.

The Lyxor ETF SG Quality Income (SGQU) is based on Societe Generale’s Quality Income Strategy Index (SGQI) and provides global equity exposure to high-quality companies that offer above-average and sustainable dividend yields.

The fund is likely to appeal to investors looking for lower-risk income and capital appreciation, and could offer an alternative to high-yield or corporate bonds.

Designed by SG Research strategists Andrew Lapthorne and Dylan Gryce, the SGQI Index seeks to deliver a similar risk profile to many low-volatility strategies with the added advantage of a higher dividend yield by focusing on stocks that offer a high dividend yield, selected from a universe of high-quality companies which are deemed to offer profitability, operating efficiency and balance sheet strength.

The index was launched on May 14, 2012 and, at that time, comprised 74 global stocks with an average yield of approximately 5% per annum. Index constituents included AstraZeneca, Coca Cola Amatil, HJ Heinz, Eli Lilly & Co, National Grid, Royal Dutch Shell and Unilever. The index is calculated in real time by Structured Solutions, with dividends due from the components reinvested.

The philosophy behind the concept is based on two simple ideas. First, a large portion of historical total returns from the equity markets come from dividend yield. And second, high-quality companies tend to outperform poorer quality companies.

As Lyxor explains: “Equity returns have been extremely volatile over the past decade. This has pushed many investors who are looking to generate yield and/or limit drawdown risk towards the bond markets. Quality income stocks represent the most stable companies in the world and can offer investors a less volatile way to benefit from a potentially attractive level of income and capital growth.”

The fund, which is synthetically replicated and comes with a with a total expense ratio of 0.45%, builds on Lyxor’s existing ETF range which includes over 275 funds offering access to over 173 individual indices across all asset classes (equities, bonds, money markets and commodities), themes, sectors and regions.

As of September, the Paris-headquartered firm had more than EUR 28 billion of assets under management in ETFs and was the third largest ETF provider in Europe and the sixth largest worldwide.

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