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The Lyxor ETFs on this website may be restricted for certain individuals or in certain countries pursuant to the national regulations applicable to those individuals or countries. It is therefore your responsibility to ensure that you are authorised to invest in the Lyxor ETFs on this website. 

 

If you are an investor in the United Kingdom, please go to www.lyxoretf.co.uk  

If you are an investor in the Netherlands, please go to www.lyxoretf.nl  

If you are an investor in Italy, please go to www.lyxoretf.it  

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If you are an investor in Sweden, please go to www.lyxoretf.se

If you are an investor in Finland, please go to www.lyxoretf.fi

 

 

The Lyxor ETFs on this website are undertakings for collective investment in transferable securities (UCITS) (i) domiciled in France and approved by the Autorité des Marchés Financiers (AMF) or, (ii) domiciled in Luxembourg, approved by the Commission de Surveillance du Secteur Financier (CSSF) and authorised to market their units or shares in the French Republic in accordance with the notification procedure under Article 93 of Directive 2009/65/EC. Investors should note that the prospectuses of certain Lyxor ETFs under Luxembourg law that have been notified in accordance with this procedure are only available on the website in English. A French translation of these prospectuses can be obtained upon request by sending a letter to Lyxor International Asset Management (“Lyxor”) – 17 Cours Valmy, 92987 Paris La Défense, France.

 

The information on this website is not intended for persons or entities that are resident, located or registered in jurisdictions that are not authorised to distribute Lyxor ETFs. As a result, the information on this website does not constitute an offer or solicitation to buy or sell units or shares in these ETFs by anyone in any jurisdiction:

 

(a)   in which such an offer or solicitation is unauthorised;

(b)   in which Lyxor is not qualified to make such an offer or solicitation; or 

(c)   in which it is unlawful to make such an offer or solicitation.

 

In particular, the Lyxor ETFs on this website are not and will not be registered under the United States Securities Act of 1933, as amended. As such, they may not be offered or sold within the United States of America, except in specific cases where transactions are exempt from registration under the Securities Act. The ETFs listed on this website may not be sold to US citizens or transferred to the United States by any other means, unless this transaction is not subject to any specific registration under US law. 

 

Any person from a jurisdiction to which the above-mentioned restrictions apply should inform themselves of and observe these restrictions.

 

This website is intended for commercial purposes and is not regulatory in nature. Although the information provided has been drawn up on the basis of sources considered to be reliable, there is no guarantee that it is accurate, complete or relevant. Some of the information on this website is provided on the basis of market data collected at a specific time and may therefore vary over time. Lyxor advises investors to read the risk factors section of the prospectus and the key investor information document carefully. These documents can be found on the website.

 

The net asset value (“NAV”) of Lyxor ETFs may at any time be subject to considerable price fluctuations, which in some cases may lead to the loss of all of the capital invested. Investors should note that some ETFs may be sensitive to fluctuations in the exchange rate between their reference currency and that of the underlying index, as well as of the components of the underlying index.

 

Before investing in a Lyxor ETF, you should carry out your own risk analysis of the product from a legal, tax and accounting perspective, rather than basing your decision solely on the information provided. If necessary, you should consult your own advisers or any other qualified professional. 

 

Subject to compliance with the legal obligations by which they are bound, Lyxor or any entity within the same group shall not be held liable for any financial or other consequences of an investment in the product. 

 

 

By clicking on institutional or individual above, I confirm that I have read and understood the information provided herein, and that I am resident or registered in Luxembourg.

 

27 Jul 2020

FOR QUALIFIED INVESTORS ONLY– This document is reserved and must be given in Switzerland exclusively to Qualified Investors as defined by the Swiss Collective Investment Scheme Act of 23 June 2006 (as amended from time to time, CISA).

Wirecard – wildcard or systemic failure?

By now, you may have heard about the controversial collapse of Germany’s former fintech darling Wirecard. We’d like to give you a bit more insight into the situation and what it has meant for our ETFs.

Background

Wirecard AG is a payment service provider that entered the DAX 30 Index of Germany’s top 30 companies in September 2018, with a market cap of around €22.5bn at the time.

On its ascent to the top league of German industry, Wirecard had become a touted growth story, with clients including FedEx and Ikea. It gave a veneer of digitalisation to a DAX still dominated by traditional industry and consumer goods.

Less than two years later, Wirecard’s stock has fallen by 98%. This once multi-billion-euro company faces insolvency –  the first ever declared by a member of Germany’s main stock index. What went wrong?

Filing for insolvency

Wirecard filed for insolvency on 25th June after auditors from EY reported that they couldn’t find around €1.9bn on its balance sheet – which Wirecard then admitted probably did not exist.

This is a huge financial scandal and another major governance blow for the reputation of the DAX 30, following relatively hot on the heels of the emissions scandal which engulfed Volkswagen. Wirecard owes around €3.5bn to its creditors, who are unlikely to see that money again.

The scale of the crisis means this isn’t just a question of company fraud – it calls into question the apparatus of corporate governance and regulation, whether accounting issues are becoming systemic, and whether audit processes are being run as they should be. 

Financial Fallout

Germany’s financial watchdog BaFin has come under fire for perceived failures to investigate complaints against Wirecard. On 1st July, its president defended the agency’s actions to the Bundestag, saying that as Wirecard was labelled as a tech company, it was not fully under BaFin’s oversight.

Meanwhile, the behaviour of KPMG and EY – two of the world’s “big four” audit companies – is also under scrutiny. EY had been certifying Wirecard accounts since 2011 and could face significant compensation claims for its role in “wrongfooting” markets, having intimated as recently as May that it would have no problem in signing off 2019 accounts.

For now, Wirecard owes its banks as much as €1.75bn from a revolving credit facility and in September 2019 issued €500mn of bonds due in 2024. Banks and bondholders have been preparing for tussles with insolvency administrators by hiring an army of consultants, advisers and law firms.

It’s hard to say how much they’ll get back. The creditors’ position is weakened by the fact the debt is unsecured, meaning the loans are not backed up by assets. Wirecard had an investment-grade rating right up until the scandal erupted late last month and creditors often only demand collateral on borrowers with ‘junk’ ratings.

It was only downgraded on 20th June, so could the ratings agencies have acted sooner?

After all, there have been alerts of possible improprieties at the company since 2016. Notably, investigations carried out by two Financial Times journalists in the UK led to the publication of a very critical article in 2019. According to the FT, BaFin then started to investigate the paper “over allegations of market manipulation.”

Then what of extra-financial ratings agencies? Such an event is a perfect test, especially for agencies carrying out ESG ratings, to see how robust and useful their data really is.

Equity ratings

Wirecard was removed from MSCI indices through an “early deletion” process on 29th June. Bankruptcy is one of the few events which can trigger an immediate deletion. This is true for all “MSCI Standard” indexes, and for those of ESG-related products built on MSCI Standard parent indexes.

This means that these products will not have to wait until the next rebalancing (November) for a deletion based on downgraded controversy level and ESG rating.

Of course, investors will be asking whether this could have happened sooner.

In truth, MSCI did identify an issue regarding Wirecard’s accounting. But this was not enough to raise the controversy level to “Red flag” or “Orange flag”, which may have triggered a removal from its ESG-related indices at the very least. At the time of the event, Wirecard was rated with a “Yellow flag” meaning its controversy level was fairly low. More broadly, it held a “BBB” rating in MSCI’s ESG-scoring methodology – the median level – even after the downgrade of its accounting score to zero.

This highlights the critical role negative screening policies (exclusions, controversies exposure screening) can play and the differences between a selection or “best in class” approach in ESG versus a tilted approach (skewing weights but keeping everything after exclusion).

However, neither of these methods fully address the issue of ESG “compensation” or averaging, where a company which rates very poorly on one criterion can still be selected for index inclusion if its other scores are good. 

Lyxor portfolio positions

So where did Wirecard sit in our portfolios and what has happened to these positions in recent weeks? 

  • Our ESG Leaders and Trend Leaders ETFs (Europe Leaders and EMU Trend Leaders) filtered out Wirecard ahead of deletion – not based on its controversy score, but because its BBB ESG rating was insufficient to make it to the Top 50%. 
  • Our MSCI Climate change products (Europe and World) did still include Wirecard. These indices keep everything once baseline exclusions are made. If Climate products were ESG-screened to exclude the likes of Wirecard, they would have to remove anything up to BBB companies which is 50% of the market at least. 

  • Our DAX ESG ETF (currently available for investors in Germany and Austria) did not include Wirecard, after the Sustainalytics ratings used in the index ruled it out on grounds of governance, liquidity and free float. 

  • Two of our new Thematic ETFs did hold Wirecard given its relevance as a key European fintech player: Digital Economy and Disruptive Technology. That’s because exclusions in these MSCI thematic indices are limited to CCC rated. Excluding BBB-rated companies would make the universe too narrow.

  • In our corporate bond ESG ETFs, our chosen indices only select companies rated with an MSCI ESG Rating of BBB and above (which differs from the Top 50% methodology). Wirecard could therefore have been selected however it had no issuance outstanding in excess of the €1bn threshold we have in place – so it was not included. 

Additional information

Weight of Wirecard as of 29/05/2020 (last end of month date preceding the event), in Lyxor products including ESG criteria in the index methodology (ESG based selection or ESG filter) and including Wirecard:

MSCI EMU Climate Change
0.34% vs. 0.31% in MSCI EMU i.e. overweight 0.03%

MSCI World Climate Change
0.03% vs. 0.03% in MSCI World

MSCI ACWI IMI Disruptive Technology ESG Filtered
0.60%

MSCI ACWI IMI Digital Economy ESG Filtered
0.67%

Important information

This document has been provided by Lyxor International Asset Management that is solely responsible for its content. 

This document is not to be deemed distribution of funds in Switzerland according to the Swiss collective investment schemes act of 23 June 2006 (as amended from time to time, CISA) or any other applicable Swiss laws or regulations.

This document is reserved and must be given in Switzerland exclusively to Qualified Investors as defined by the Swiss Collective Investment Scheme Act of 23 June 2006 (as amended from time to time, CISA).

Financial intermediaries (including particularly, representatives of private banks or independent asset managers, Intermediaries) are hereby reminded on the strict regulatory requirements applicable under the CISA to any distribution of foreign collective investment schemes in Switzerland. It is each Intermediary’s sole responsibility to ensure that (i) all these requirements are put in place prior to any Intermediary distributing any of the Funds presented in this document and (ii) that otherwise, it does not take any action that could constitute distribution of collective investment schemes in Switzerland as defined in article 3 CISA and related regulation.

Any information in this document is given only as of the date of this document and is not updated as of any date thereafter. 

This document is for information purposes only and does not constitute an offer, an invitation to make an offer, a solicitation or recommendation to invest in collective investment schemes.  This document is not a prospectus as per article 652a or 1156 of the Swiss Code of Obligations, a listing prospectus according to the listing rules of the SIX Swiss Exchange or any other trading venue as defined by the Swiss Financial Market Infrastructure Act of 19 June 2015 (as amended from time to time, FMIA), a simplified prospectus, a key investor information document or a prospectus as defined in the CISA. 

An investment in collective investment schemes involves significant risks that are described in each prospectus or offering memorandum. Each potential investor should read the entire prospectus or offering memorandum and should carefully consider the risk warnings and disclosures before making an investment decision. 

Any benchmarks/indices cited in this document are provided for information purposes only.

This document is not the result of a financial analysis and therefore is not subject to the “Directive on the Independence of Financial Research” of the Swiss Bankers Association. 

This document does not contain personalized recommendations or advice and is not intended to substitute any professional advice on investments in financial products. 

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