Product Panel: Lyxor's climate change ETF range

Tom Eckett

a collage of a man and a woman

Lyxor has taken ESG investing to the next level with the launch of an ETF range that looks to directly address the huge issue of climate change.

The French asset manager is the first ETF issuer that looks to capture the objectives of the European Union's Climate Transition Benchmarks which target a 30% reduction in carbon intensity and a 7% annual emission reduction trajectory.

What the company says:

Arnaud Llinas, head of ETF and indexing at Lyxor, commented: “By revising its investment benchmark regulations, the EU has assigned passive, rules-based investment managers a key role in the fight against climate change.

“ETF providers have the opportunity, and indeed the responsibility, to help shift the trillions by offering simple, transparent products which meet the requirements of the new regulation.

“Through the addition of this unique range we are providing investors with yet more tools to achieve their climate goals.”

What the panel says:

Hortense Bioy, director of passive strategies and sustainability research at Morningstar

This range of climate ETFs is one of many more to come as all major ETF providers will be looking to respond to the growing demand for climate-related products while meeting the new European regulation on carbon benchmarks.

Investors are becoming increasingly aware of the risks and opportunities arising from climate change and are looking to position their portfolios accordingly.

Athanasios Psarofagis, ETF analyst at Bloomberg Intelligence

We will continue to see a proportionally higher percentage of ESG launches in Europe, especially from the 2nd tier issuers looking to catch up to BlackRock and UBS.

It can be crowded in the ESG space so Lyxor is trying to be a bit more differentiated with these first climate change ETFs.

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The timing of these is interesting in light of the recent virus outbreak, and grounding of aircraft has caused a reduction in CO2 emissions and could put more of these product types in the spotlight.

While most of the ETF industry has seen outflows this year, ESG flows remain positive and issuers are seeing the benefit of growing these strategies which tend to have a sticker asset base

Nicolas Rabener, managing director of FactorResearch

Lyxor's launch climate change ETFs empowers investors to pro-actively fight climate change with their investment dollars.

However, understanding the index construction does require a meaningful amount of time as the stock selection is based on a set of complex rules from EU's Technical Expert Group (TEG). Furthermore, the methodology is changing by 30 April. Complexity is not desirable when investing.

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Although most European investors are in favour of fighting climate change, like all investors they tend to regard large tracking errors as quite unfavourably.

Given sector biases, investors should expect significant differences in performance to benchmarks. For example, the Lyxor MSCI USA Climate Change UCITS ETF (CLUS) has a 30% allocation to tech stocks, compared to 24% for the MSCI USA benchmark index.

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