Lyxor launches gold ETN

Lyxor Asset Management, a wholly owned subsidiary of Société Générale (SG) has launched its first exchange-traded note (ETN), the Lyxor ETN Long Gold, which is listed on the London Stock Exchange (LSE). The note is designed to track, in real time, the performance of the gold spot price quoted in US dollars per troy ounce.

Lyxor ETNs are secured notes guaranteed by SG and 100% collateralised with Standard & Poor's AAAf-rated euro government bond funds or government bonds from the Euro zone. An SG special purpose vehicle in Luxembourg, Codeis, is used to collateralise the notes. The collateral is completely ring-fenced. The note, which is eligible for capital gains tax treatment in the UK, has a fixed annual fee of 0.30% while a variable annualised cost is also incurred to finance the collateral used in the underlying structure. As of Friday March 20, the tracking error, which comprises the fixed fee and variable annualised cost, was 126 basis points (30bp + 96bp).

The note, which is listed on the LSE's ETN segment, will compete with other similar debt securities listed in the UK market such as exchange-traded commodities (ETCs). The ETN is structured to be eligible for capital gains tax treatment. Lyxor, a provider of exchange-traded funds, chose to structure the note as an ETN, an unsecured debt security, s it is forbidden, under Ucits III diversification guidelines, to create ETFs that track single commodities.

"We launched Lyxor ETNs to provide investors access to markets such as gold that cannot be replicated with our ETFs following Ucits guidelines," says Claus Hein, director at Lyxor in London. "Given counterparty exposure concerns and feedback from our clients, we decided to fully collateralise Lyxor ETNs to eliminate the counterparty risk on the issuer."