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Short and Leveraged ETFsAmplify returns and protect against losses

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

Short and Leveraged ETFsMarch 2017

Press on with precision

The long and short of it 4

The ins and outs of leverage 5

Take cover with Short ETFs 6

How Short ETFs work 8

How Short ETFs behave 9

Strengthen your defences 11

Double up with Leveraged ETFs 12

How Leveraged ETFs work 14

How Leveraged ETFs behave 15

Keep more of your powder dry 17

Why Short or Leveraged ETFs? 18

Comparing UCITS ETFs 20

Why choose Lyxor? 22

Knowing your risk 23

Lyxor ETF | Short and Leveraged ETFs

In today’s fast-changing political and economic climates, it takes more sophisticated tactics to keep your portfolios on track. It is hard to say what markets might do next and whether to view the potential volatility as an opportunity or a threat.

Whether you’re looking to manage downside risk with tactical hedges, amplify returns with leverage, or employ a more sophisticated long/short strategy, Lyxor offers you more ways to express your views or concerns than anyone else.

We launched many of the market’s first leveraged ETFs, and have cemented our position as number one in Europe for UCITS compliant short and leveraged ETFs1. Whatever the climate, we believe Lyxor’s Short and Leveraged ETFs could help keep your portfolio on track.

Arnaud Llinas, Global Head of ETFs and IndexingLyxor Asset Management

Welcome

1 Source: Lyxor International Asset Management. $3.9bn in assets under management across long leveraged, short, and double short ETF exposures as of 07/12/2016.

3

We offer three main types of strategies:

1. Single short ETFsSingle short ETFs can be used to hedge your portfolio against a market fall, or indeed profit from a downturn. They offer the inverse daily performance of their underlying indices. As an example, a 3% daily fall in the index would result in a 3% daily gain for the ETF, before fees. On the other hand, a 3% daily rise in the index would mean the ETF goes down by 3% over the same day.

2. Double short ETFsThese are for the high conviction, bearish investor. The idea behind double short ETFs is similar to single shorts, but with a key difference – a leverage factor of two. That means they offer twice the inverse daily performance of their benchmark. A 3% daily drop in the index would result in a 6% gain for the ETF over the same day, before fees. Conversely, a 3% daily rise would mean a loss of 6% for the ETF over the same day.

3. Leveraged ETFsThese are for the high conviction, bullish investor. Leveraged ETFs amplify gains and losses by a factor of two. So a 3% daily rise in the index would offer a 6% gain for the ETF before fees over the same day, and vice versa.

Short and leveraged ETFs are tactical tools designed for investors seeking to either protect themselves from market falls, or amplify their returns in both rising and falling markets.

It’s hard to say where markets might go. It’s simpler to say we could be in for a number of unexpected ups and downs. Whether you view potential volatility as an opportunity or a threat, Lyxor’s range of short and leveraged ETFs could help.

Our range spans across equity and bond markets. Should European equities dive or US Treasury yields surge, we have the tools to help. Worth bearing in mind, our short and leveraged fixed income ETFs invest in futures contracts rather than the underlying bonds themselves.

The long and short of it

-3%

-3%

+3%

+3%

+6%

+6%

Daily performance before fees

Index

Index

Index

Single short ETF

Double short ETF

Leveraged ETF

A word of warning If you are adding leverage to your portfolio, you are risking twice the amount of your invested capital. This means that the magnitude of both your daily gains and losses is doubled. And, as we’ll explain in more detail later on, short and leverage products held in your portfolio for any longer than a day will be exposed to compounding risk and may have a material effect – negative or positive – on the performance of your ETFs.


The ins and outs of leverageLeverage – also known as ‘gearing’ – amplifies gains and losses by a given factor. Leverage is traditionally achieved by borrowing money to increase exposure.

Here’s how: ► An investor wishing to amplify his or her

returns borrows money from a financial institution, for example a broker

► In return for lending out capital, the broker would charge the investor interest – the borrowing cost for the period the money is lent

► The broker will set up a margin account, in which the investor has to keep a certain amount (typically a percentage of the total borrowed amount)

► The margin account affords the broker some protection should the investor default

Why do it?Borrowing like this means investors can achieve a far greater outcome relative to their initial outlay. A nominal amount of €100 combined with an equivalent borrowed amount of €100 means your total invested exposure is twice your initial capital. Obviously this comes with added risk – should markets turn against you, you would lose twice as much as compared to a direct investment in the underlying.

The ETF advantageWhen you buy a daily leveraged ETF, you don’t need to worry about managing the leverage and margin account yourself. Those mechanisms and associated borrowing costs exist and are important to bear in mind, but they are reflected in the performance of the product. The onus is on the ETF manager to deliver the leveraged performance, giving you the peace of mind to focus on the exposures you want, rather than the hassle of borrowing and maintaining a margin account.

Jargon busterLongA bullish view takes a long position to benefit from a rise in the market. In other words, being long means you want to buy the market. If markets fall, your capital is at risk.

ShortA bearish view takes a short position to benefit from a fall in the market. In other words, being short means you want to sell the market. If markets rise, your capital is at risk.

LeverageA long or short leveraged position amplifies returns by a given factor. Both gains and losses are affected by this leverage factor. Leverage makes use of borrowed funds, and entails borrowing costs.

CompoundingThe process by which daily gains or losses are taken into account when calculating the next day’s returns. Compounding can have a material impact on the performance of daily leveraged products when the holding period exceeds one day.

5

Take cover with Short ETFs


Should you believe markets will fall on any given day, single and double short ETFs will provide a positive return (before fees). Single short ETFs provide a return of one times the daily fall, and double short ETFs multiply that return by two.

There are two ways of using them in your portfolio:

Hedge against falling markets

Profit using a single short ETF

Protect your investments

Boost your potential return with a double

short ETF

Manage downside risk

Benefit from falling markets

What you should know about gains and lossesA key risk of leveraged investments such as double short ETFs is that by nature, losses as well as gains are amplified. For this reason, even though you are convinced that your investment will pay off, you should be able to tolerate substantial losses over a short period of time.

7

How Short ETFs workExpress a different view each day Our short ETFs are designed to deliver the inverse, or twice the inverse, return of a number of benchmarks including the CAC 40, Euro Stoxx 50, 10-year bunds or US Treasuries, on a daily basis. Your profit or loss each day is determined by the direction – and by how much – your chosen benchmark index moves from one day to the next.

Single vs. Double A single short ETF will rise by 1% for every 1% fall in a given benchmark on a given day, while a double short ETF will gain 2% for each 1% fall, before fees. Because the leverage is reset on a daily basis, if you hold these ETFs for more than a day, both gains and losses start being compounded. This means the long-term performance of short and double short ETFs can drift away from the benchmark.

The compounding effectLet’s assume* our benchmark has a starting value of 100. By market close it has fallen 5% to 95. An associated double short ETF (also assuming a starting value of 100) should be up by 10%, before fees, to 110. If by the end of the following day, the index had risen by 5% from 95 to 99.75, the short ETF would have fallen by 10% from 110 to 99.

Over the two days, while the index has fallen by 0.25%, the short ETF has not risen twofold (i.e. by 0.5%). The ETF has actually fallen slightly because of day-to-day compounding. Something similar would happen with a single short ETF, without the doubling of returns.

Long term effectsCompounding can lead to slippage over time between the index and the ETF. Slippage grows with the underlying index volatility, the leverage factor, and the holding period.

For these reasons, single and double short ETFs may not be suitable as long-term holdings. Think about re-setting your positions frequently if your investment horizon is long. And remember that slippage can be particularly significant when markets are volatile, because the compounding of positive and negative returns can harm long-term performance.

*For illustrative purposes only, before fees. This is not a recommendation.

Index

100

-5% +10%

+5% -10%

100

95 110

99.75 99

Double Short ETF

Day 0

Day 1

Day 2

2-day performance -0.25% -1% +0.5%≠


How Short ETFs behaveCompounding can be beneficial if a benchmark continues to go your way, but it can be very detrimental should conditions change. These three scenarios explain what could happen if markets move:

DownA continuous downward trend is the most beneficial for short and double short ETFs. Get your call right, and performance will be locked in each day with subsequent gains based on a progressively higher value.

Example* The chart illustrates the benchmark continuing to fall over a six day period. The continuous light blue line represents the actual performance of a double short ETF, while the dotted light blue line represents what would happen without compounding, a theoretical return you would not receive. By the end of the period, the index has fallen by a total of 14.09%. If there was no compounding, you would expect the value of the ETF to have risen by twice that amount, i.e. 28.19% before fees.

However, what we actually see is a gain of 33.97% over the period, slightly higher than if there were no compounding. Over a longer period, you can see the potential benefit of compounded returns.

*For illustrative purposes only. This is not a recommendation. Performance data is theoretical and does not take into account ETF management fees or brokerage fees.

60

80

100

140

120

Theoretical DoubleShort ETF value (no compounding)Actual Double Short ETF valueIndex value

Day 0 Day 1 Day 2 Day 3 Day 4 Day 5 Day 6

Per

form

ance

(%)

Illustrative Double Short ETF performance in a downwards trending market*

9


UpIf the market is trending steadily upwards, your short ETF will fall in value each day. However, compounding can actually help soften the blow because losses are applied to a lower ETF price each day.

Example* Over six successive days of gains, the benchmark index rises 15.96% in total. Without compounding, a double short ETF would have fallen by double that amount, i.e. -31.92%, before fees.

Since losses to the ETF price are locked in each day, compounding reduces the loss to -26.52% .

Sideways This way danger lies. In a directionless, but volatile, market where the index rises and falls every day, a short ETF will generally suffer the negative effects of compounding. With every gain, the subsequent loss is applied to a larger amount. And, after any loss, the subsequent gain is based on a smaller amount. Over time this can really reduce returns.

Example* The table and chart show just how destructive this process can be. After six days, the index has fallen by 0.27%. If there was no compounding, the double short ETF would have been up fractionally at 0.54%.

In reality, compounding has caused the ETF to fall by 1.08%. Over a longer period it would be worse. That is why short and double short ETFs are typically held for short periods.

In this example, the daily leverage factor of the product is 2, but the implied leverage over the period - calculated by dividing the end return of the double short ETF by the end return of the index - is 4.

Day Index value

Daily change

Actual Double Short

ETF value

Theoretical Double Short ETF value

(no compounding)

0 100 100 100

1 103 3% 94 94

2 99.91 -3% 99.64 100.18

3 102.91 3% 93.66 94.18

4 99.82 -3% 99.28 100.36

5 102.81 3% 93.32 94.38

6 99.73 -3% 98.92 100.54

Total change -0.27% -1.08% +0.54%

60

80

100

120


Per

form

ance

(%)


102

100

98

96

94



Per

form

ance

(%)

Illustrative Double Short ETF performance in an upwards trending market*

Illustrative Double Short ETF performance in a sideways trending volatile market*


If you’re concerned markets might take a sudden dip and you don’t want to cash in your long bond or equity positions, short ETFs can provide a useful hedge. Any loss you make on the long side is compensated by a gain on the ETF.

Take the example* of an investor with a €1,000 long-only portfolio of US equities. After a strong rally in the US stock market they, like many of us would, fear a potential correction is just around the corner.

If their fears prove well founded, their US equity allocation could fall by let’s say 10% over one trading day. All else being equal, their long-only portfolio would be worth €100 less at €900.

However, had they taken some precautions, and hedged their US equity holdings with a €500 investment in a double short S&P 500 ETF, the 10% fall on the long leg would have been countered by a 20% gain on the short side – which would replace the missing €100. They’d win some, as well as lose some, but at least their portfolio would have stayed flat (before fees).

The example above is illustrative and works for a one-day investment period only. Because of compounding and resulting slippage, the investor would have to adjust their position regularly in order to maintain the exposure they want over longer investment horizons.

Strengthen your defences


€1,000 long

Day 0

Day 0

€1,000 long, €500 short = €1,500 total

€900 long

Day 1

Day 1

€900 long, €600 short = €1,500 total

Unhedged*

Double Short ETF hedge*

US equities

-10%

US equities

-10%

11

Double up with Leveraged ETFs


Leveraged ETFs are designed to make the most of a tactical opportunity. By doubling your exposure to a given index, you open the door to twice the return – positive or negative.

There are two main ways of using them in your portfolio:

What you should know about gains and lossesA key risk of leveraged investments is that by nature, losses as well as gains are amplified. For this reason, even though you are convinced that your investment will pay off, you should be able to tolerate substantial losses over a short period of time.

Asset class or index is positive

Deploy less capital

Double your returns

Free up money to use elsewhere

Amplify returns

Preserve investment capital

13

Express a different view each day A leveraged ETF is designed to exploit rising markets. It will rise by 2% for every 1% rise in an index on a given day, before fees. Leveraged ETFs are limited to two times leverage in order to stay within the rules of UCITS regulations. Any more than that, it’s not a UCITS ETF.

Daily compounding As with all our short ETFs, the performance of leveraged ETFs is calculated daily, meaning they are subject to the same compounding issues. As a result of this daily leverage reset, if you hold these ETFs for more than a day, both gains and losses start being compounded. This means the long-term performance of leveraged ETFs can drift away from the benchmark.

The compounding effectConsider the example below*. If an index starts with a value of 100 and closes the day up 4%, a leveraged ETF (also assuming a starting value of 100) should be up by 8%, before fees – double the return.

*

If by the end of the following day, the index has fallen 3% from 104 to 100.9, the ETF would be down 6% to 101.5. So over the two day period, while the index has risen by 0.9%, the leveraged ETF is up by just 1.5% because of the compounding.

Long-term results Compounding can lead to slippage over time between the index and the ETF. Slippage grows with the underlying index volatility, the leverage factor, and the holding period.

For these reasons, leveraged ETFs may not be suitable as long-term holdings. Think about re-setting your positions frequently if your investment horizon is long. And remember that slippage can be particularly significant when markets are volatile, because the compounding of positive and negative returns can harm long-term performance.


How leveraged ETFs work

Index

100

+4%

-3%

104

100.9

+8%

-6%

100

108

101.5

Leveraged ETF

Day 0

Day 1

Day 2

+0.9% +1.5% +1.8%≠


DownA market trending downwards continuously is bad news for a leveraged ETF. Each day the benchmark falls, the leveraged ETF will double your loss. Compounding softens the blow, as every day the loss is applied to a smaller ETF value.

Example* The chart shows an index falling by a total of 14.9% over a six day period. The continuous light blue line represents the actual performance of a leveraged ETF, while the dotted light blue line represents what would happen without compounding, a theoretical return you would not receive. If there were no compounding, the associated leveraged ETF would have fallen by twice that amount, 28.19%, before fees.

In reality, changes in the ETF price are based on the previous day’s closing price, meaning that the compounding reduces the loss to 26.51%.

How Leveraged ETFs BehaveJust like the short ETFs described earlier, leveraged ETFs undergo the same compounding effect, which can either work for you or against you. These three scenarios explain how:


100

107

114

121

128

135

70

75

80

85

90

95

100

99

100

101

102

103

104

105

106


0 1 2 3 4 5 6P

erfo

rman

ce (%

)


Per

form

ance

(%)


Per

form

ance

(%)

Theoretical Leveraged ETF value (no compounding)Actual Leveraged ETF valueIndex value



Illustrative Leveraged ETF performance in a downwards trending market*

15

UpGet your timing right, and a continuous upward trend could be a very beneficial scenario. This is because leveraged ETFs lock in their performance each day and subsequent gains are based on a progressively higher value. With every daily gain in the index, the ETF will rise twice as fast.

Example* The chart shows an index rising for six successive days to close 15.96% up. Without compounding, an ETF investor could expect twice that return (31.92%).

However, daily compounding enhances returns slightly, leading to a final gain of 33.97%.

100

107

114

121

128

135

70

75

80

85

90

95

100

99

100

101

102

103

104

105

106


0 1 2 3 4 5 6

Per

form

ance

(%)


Per

form

ance

(%)


Per

form

ance

(%)





Sideways This way danger lies for leveraged ETFs. In a directionless but volatile market where the index rises and falls every day, a leveraged ETF will generally suffer more than the index. With every gain, the subsequent loss is applied to a larger amount, and after any loss, the subsequent gain is based on a smaller amount. Over time, this can really reduce returns.

Example* The table and chart show just how destructive this process can be. Over six days of choppy returns, the index has posted a modest loss of 0.27%. Without compounding, a leveraged ETF would be down 0.54%.

In reality, compounding causes the ETF to fall by 1.08%. Over the long term it would be worse. That is why leveraged ETFs are typically held for short periods.

In this example, the daily leverage factor of the product is 2, but the implied leverage over the period - calculated by dividing the end return of the leveraged ETF by the end return of the index - is 4.

Day Index value

Daily change

Actual Leveraged ETF value

Theoretical Leveraged ETF value

(no compounding)

0 100 100 100

1 103 3% 106 106

2 99.91 -3% 99.64 99.82

3 102.91 3% 105.62 105.81

4 99.82 -3% 99.28 99.64

5 102.81 3% 105.24 105.63

6 99.73 -3% 98.92 99.46

Total change -0.27% -1.08% -0.54%

100

107

114

121

128

135

70

75

80

85

90

95

100

99

100

101

102

103

104

105

106


0 1 2 3 4 5 6

Per

form

ance

(%)

Day 0 Day 1 Day 2 Day 3 Day 4 Day 5 Day 6P

erfo

rman

ce (%

)


Per

form

ance

(%)




Illustrative Leveraged ETF performance in an upwards trending market*

Illustrative Leveraged ETF performance in a sideways trending volatile market*


Keep more of your powder dryIf you are convinced markets will rise, a leveraged ETF can bring you twice the potential returns. But they can be used in a more conservative way, to reduce the amount of capital you put at risk on any given day.

A conventional ETF investment For example*, if you want to allocate €1,000 to eurozone equities because you expect them to bounce back you could invest in a regular Euro Stoxx 50 ETF. If you’re right, and European equities rise by 10%, you will have locked in a healthy €100 gain before fees.

A leveraged ETF investment You could however have achieved a similar result by investing just €500 in a 2x Leveraged Euro Stoxx 50 ETF. Here the 10% increase in the Euro Stoxx 50 yields a 20% gain in the ETF. By investing €500, your return is €100, the same as the traditional ETF. It works the other way too, if the Euro Stoxx 50 fell, the loss suffered on each option would be the same.


The compounding effect A word of caution at this point: if the Euro Stoxx 50 took more than a day to achieve its 10% gain, which is likely to be the case, your return on the leveraged ETF could have drifted a little due to the compounding effect, and could be higher or lower than €500.

Euro Stoxx 50 index

Euro Stoxx 50 index

+10%

+10%

Euro Stoxx 50 ETF

Euro Stoxx 50 ETF

2x Leveraged Euro Stoxx 50 ETF

Standard ETF*

2x Leveraged ETF*

€1,000

2x Leveraged Euro Stoxx 50 ETF

Other investments

€500

€500

€1,000

€500

€500

€1,100

€600

Day 0

Day 0

Day 1

Day 1

17

Why Short or Leveraged ETFs?There are numerous benefits of using ETFs over other short or leveraged products, but also some wariness.

One of the most important features of our range is that unlike similar exchange traded products that are merely UCITS eligible, our ETFs are fully UCITS compliant, which means they are subject to stricter regulation.

There are many other advantages to taking the Short or Leveraged ETF route with Lyxor.

Low costWith management fees starting at just 0.20%, our range of short and leveraged ETFs offer competitive access to a wide range of equity and fixed income indices.

SimplicityOrdinarily, going short or leveraging your returns can be costly and complex, whereas buying an ETF is a simple trade.


What is UCITS?UCITS – Undertakings for the Collective Investment of Transferable Securities – is a framework set up by the European Commission with the goal of harmonising the distribution of investment funds in Europe, and protecting you, the investor.

UCITS funds must adhere to strict regulatory requirements around transparency and quality. Those requirements include complete transparency around fees, disclosures on counterparty risk, and profits generated from efficient portfolio management techniques, meaning you can trade with confidence and peace of mind.

Limited riskUnlike other leveraged products such as Contracts For Difference (CFDs) and spread bets, you will never lose more than you invest, which means you can manage your risk more precisely.

LiquidityOur ETFs are supported by a robust network of authorised participants and market makers, and benefit from both primary and secondary market liquidity.

TransparencyOur funds track transparent indices meaning you know exactly what kind of exposure you’re getting, and you can buy and sell them with full transparency around price.

19

Comparing UCITS ETFsWe believe ETFs offer the most secure path to short and leveraged exposures, but there are other instruments available that steer you down a similar path. They are not however restricted by UCITS requirements.

UCITS eligible ETPsExchange Traded Products (ETPs) generally fall into two categories: Exchange Traded Commodities/Currencies (ETCs) and Exchange Traded Notes (ETNs). While ETCs track the performance of commodity markets or currencies and are secured debt securities, ETNs track a wide range of indices and are issued by a bank as unsecured debt products. Both ETC and ETNs may be UCITS eligible, meaning they may be used within a UCITS fund, but they are not themselves UCITS compliant, and are not subject to the same level of rigour imposed by the UCITS directive. They do however allow for higher leverage factors, such as 3x or 5x.

Warrants and certificatesWarrants and certificates are types of debt securities issued by a single financial institution. They usually aren’t collateralised, and they may or may not be listed on public exchanges. If they are exchange traded, they are often supported by a single market maker, the issuing entity of the product. Like call and put options, warrants can be useful tools to speculate on market movements for leveraging or hedging purposes. They may have increased credit and liquidity risk compared to ETFs, as the holder is dependent on both the creditworthiness of the issuer and its ability to make continuous markets on the product. As with UCITS eligible ETPs, warrants and certificates can provide far greater leverage than UCITS ETFs.

Futures contractsFutures contracts are a type of financial derivative traded on futures exchanges that provide exposure to a variety of assets and indices. The buyer of a future is long and has the obligation to buy a given asset at a given price on a predetermined date (the seller who is short the position has a similar obligation to sell). Over the lifetime of the contract, each party usually posts collateral (a margin equivalent to a percentage of the contract’s value) to protect themselves in case of the other defaulting. Most of the time, there is no physical change of assets at contract expiry – settlement is usually done by cash. While futures markets can benefit from high liquidity, trading of futures is more complex than buying an ETF, and is generally restricted to professional investors only.

Spread bets and CFDsSpread bets and CFDs are similar in that they both offer the ability to speculate on the movement of an asset price. The buyer of a spread bet or CFD is long a position and benefits if its value rises, while the seller is short and would want the asset to fall. Depending on the magnitude of the price change and the amount of leverage, these instruments can rise or fall in value significantly, and by more than the initial investment. This means investors are theoretically exposed to unlimited losses if the asset price moves against them. Neither spread bets nor CFDs are traded on exchange, and they are not collateralised. One benefit they do offer is the ability to leverage investments to very high levels, sometimes exceeding 100x.


UCITS ETFsUCITS eligible

ETPsWarrants and certificates

Futures contracts

Spread bets and CFDs

UCITS compliant funds? Yes No No No No

Leverage factorBetween -2x

and +2xNo limit No limit No limit No limit

Maintenance of margin account by the investor?

No No No Yes Yes

Losses limited to Initial investment?

Yes Yes Yes No No

Traded on public exchanges?

Yes Yes Can beFutures

exchangesNo

Multiple market makers? Yes YesUsually not but

can beYes No

Collateralised?Yes, within strict UCITS guidelines

Usually but not always

No No No

Comparing UCITS ETFs with other short and leveraged instruments

21

Why choose Lyxor?

► 17 ways to go short and 9 ways to amplify long returns across equity and fixed income exposures.1

► The largest range of short, double short and leveraged ETFs in Europe by number of exposures and assets under management.1

► The first in Europe to launch double short ETFs in 2007, and leveraged ETFs in 2006.2

► One of the largest and among the most liquid providers of ETFs in Europe.3

► No other European provider has been running ETFs as long as we have.4

► A consistent track record in delivering secure, liquid and precise tracking.

1 Source: Lyxor International Asset Management. $3.9bn in assets under management across long leveraged, short, and double short ETF exposures as at 07/12/2016.2 Source: First double short ETF launched by Lyxor in Europe in January 2007 (Lyxor CAC 40 Daily Double Short UCITS ETF). First leveraged ETF launched by Lyxor in Europe in June 2006 (Lyxor DAILY LevDAX UCITS ETF).3 Source: Lyxor International Asset Management. $53.9bn in assets under management as at 12/12/2016. Source for liquidity data: Bloomberg, over period 30/11/2015 to 30/11/2016.4 Source: Lyxor International Asset Management. First Lyxor ETF launched in Europe in December 2000 (Lyxor CAC 40 UCITS ETF).

Leveraged ETF Single Short Double Short

Equities

Europe: Euro Stoxx 50 (BSX) United States: S&P 500 (DSP5)

Europe: Euro Stoxx 50 (BXX)

Germany: DAX (LVD) France: CAC 40 (SHC) Italy: MIB (XBRMIB)

France: CAC 40 (LVC)

Fixed Income

Germany: Bunds (BUNS) United States: Treasuries (DSUS)

United States: Treasuries (US1S)

Italy: BTPs (BTP1S) Italy: BTPs (BTPS)


Knowing your risk It is important for potential investors to evaluate the risks described below and in the fund prospectus on our website www.lyxoretf.com

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 riskThe 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 riskInvestors are exposed to risks resulting from the use of an OTC swap with Société Générale. In-line with UCITsguidelines, 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.

Leverage RiskLeveraged products amplify both gains and losses by a given leverage factor. Losses can therefore potentially be substantial.

Compounding RiskThe 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.

Underlying riskThe 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 riskETFs 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.

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Contact information +44 (0) 800 707 69 56 | [email protected] | www.lyxoretf.co.uk

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 435658.

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 (www.amf-france.org). 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 l yxoretf. com or upon request to client-services-etf@ lyxor.com.

The products are the object of market-making contracts, the purpose of which is to ensure the liquidity of the products on NYSE Euronext Paris, Deutsche Boerse (Xetra) and the London Stock Exchange, assuming normal market conditions and normally functioning computer systems. Units of a specific UCITS ETF managed by an asset manager and purchased on the secondary market cannot usually be sold directly back to the asset manager itself. Investors must buy and sell units on a secondary market with the assistance of an intermediary (e.g. a stockbroker) and may incur fees for doing so. In addition, investors may pay more than the current net asset value when buying units and may receive less than the current net asset value when selling them.

Updated composition of the product’s investment portfolio is available on www. lyxoretf.com. In addition, the indicative net asset value is published on the Reuters and Bloomberg pages of the product, and might also be mentioned on the websites of the stock exchanges where the product is listed.

Prior to investing in the product, investors should seek independent financial, tax, accounting and legal advice. It is each investor’s responsibility to ascertain that it is authorised to subscribe, or invest into this product.

This document together with the prospectus and/or more generally any information or documents with respect to or in connection with the Fund does not constitute an offer for sale or solicitation of an offer for sale in any jurisdiction (i) in which such offer or solicitation is not authorized, (ii) in which the person making such offer or solicitation is not qualified to do so, or (iii) to any person to whom it is unlawful to make such offer or solicitation. In addition, the shares are not registered under the U.S Securities Act of 1933 and may not be directly or indirectly offered or sold in the United States (including its territories or possessions) or to or for the benefit of a U.S Person (being a “United State Person” within the meaning of Regulation S under the Securities Act of 1933 of the United States, as amended, and/or any person not included in the definition of “Non-United States Person” within the meaning of Section 4.7 (a) (1) (iv) of the rules of the U.S. Commodity Futures Trading Commission.). No U.S federal or state securities commission has reviewed or approved this document and more generally any documents with respect to or in connection with the fund. Any representation to the contrary is a criminal offence.

This document is of a commercial nature and not of a regulatory nature. This document does not constitute an offer, or an invitation to make an offer, from Société Générale, Lyxor Asset Management (together with its affiliates, Lyxor AM) or any of their respective subsidiaries to purchase or sell the product referred to herein.

These funds include a risk of capital loss. The redemption value of this fund may be less than the amount initially invested. The value of this fund can go down as well as up and the return upon the investment will therefore necessarily be variable. In a worst case scenario, investors could sustain the loss of their entire investment.

This document is confidential and may be neither communicated to any third party (with the exception of external advisors on the condition that they themselves respect this confidentiality undertaking) nor copied in whole or in part, without the prior written consent of Lyxor AM or Société Générale. The obtaining of the tax advantages or treatments defined in this document (as the case may be) depends on each investor’s particular tax status, the jurisdiction from which it invests as well as applicable laws. This tax treatment can be modified at any time. We recommend to investors who wish to obtain further information on their tax status that they seek assistance from their tax advisor. The attention of the investor is drawn to the fact that the net asset value stated in this document (as the case may be) cannot be used as a basis for subscriptions and/or redemptions.

The market information displayed in this document is based on data at a given moment and may change from time to time.

Authorizations: Lyxor International Asset Management (Lyxor AM) is a French management company authorized by the Autorité des marchés financiers and placed under the regulations of the UCITS (2009/65/EC) and AIFM (2011/61/EU) Directives.

Société Générale is a French credit institution (bank) authorised by the Autorité de contrôle prudentiel et de résolution (the French Prudential Control Authority

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