Societe Generale has listed its first smart beta exchange-traded note (ETN) on the London Stock Exchange (LSE) designed for sophisticated investors looking for growth from the global equity markets.
The SG Twenty20 Global Explorer ETN is a smart tracker note linked to the performance of a basket of exchange-traded funds (ETFs) which are updated on a monthly basis. Unlike a regular ETN or tracker, the dynamic portfolio of ETFs is automatically updated by Twenty20 Investments, a London based portfolio manager specialising in the development of low cost and liquid ETF portfolios.
Twenty20 strategy uses a combination of economic indicators, volatility and correlation to determine which five ETFs to invest in, and how each one is weighted in the portfolio, said Ben Thompson (pictured), director, head of business development, exchange-traded products, UK at SG. “Essentially, Twenty20 acts as the weighting manager of the dynamic underlying portfolio… and uses the indicators to select five countries that look like they offer promising economic growth, so each ETF in the underlying dynamic portfolio represents a different country,” said Thompson.
If there are not five attractive equity markets to invest in, Twenty20 Investments can switch some or all of the portfolio to alternative assets to reduce losses. “In this Twenty20 strategy, fixed-income ETFs will be deployed as an alternative,” said Thompson.
The product provides exposure to a global equity strategy via a capital-at-risk structure where the counterparty risk is mitigated through collateral holdings with the performance dependent on the success of Twenty20’s country rotation strategy, said Thompson
The partnership with Twenty20 is something SG has been looking to develop since last year when the two firms started working together as part of the bank’s strategy to increase its range of smart beta exchange-traded products (ETPs). “The flexibility of exchange-traded products allows us to add non-traditional index tracker structures to our offering,” said Thompson. “We see smart beta as another tool to allow issuers and investors to get more granular in their investment strategies.”
ETPs can offer exposure to the more core indices (FTSE 100, S&P 500, Eurostoxx 50) but can also enable investors to take a step further and be more strategic in their exposure, said Thompson. “This can be done via a simple reweighting of stocks but also through more sophisticated strategies such as this one,” said Thompson. “This is part of a growing range which has been fundamentally designed to provide sophisticated and professional investors with products that can bring something new to that audience.”
This is the third development implemented by the French bank’s listed products team in London which is headed by Alexandre Houpert. In January, SG launched a new range of credit linked notes (CLN) which was followed shortly after by a new suite of short & leverage exchange-traded products (ETPs) on the LSE, targeted at UK professional investors. In addition, the French bank added, in February, new OTC functionality to its Alpha electronic trading platform to allow distributors, private banks and wealth managers to price OTC instruments alongside the platform’s structured products.
The ETN can be purchased through most UK stockbrokers and can also be traded via a dealing account, SIPP, or stocks and shares ISA during market hours.
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