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  • 1. 16th March 2011
    For Professional Investors only
    This document is not intended for use by or targeted at retail customers. Should a retail customer obtain a copy of this document they should not base their investment decisions solely on the basis of this document but must seek independent financial advice.
    Beyond ETFs
    Bloomberg: SGLP <GO>
    Reuters: SGLP
    www.sglistedproducts.com
    Exchange Traded Products
    0207 762 5111listedproducts@sgcib.com
  • 2. Contents
    Tracking error
    • Is this a serious issue?
    • 3. How can it be eliminated?
    Obtaining efficient exposure to rising commodity prices
    • Comparing commodity indices to spot prices
    • 4. Contango and backwardation
    • 5. Obtaining more efficient long-term exposure
    Low cost asset allocation using an Exchange-Traded-Product
    • New Actively-managed Tracker trading on the LSE
  • Tracking Error
  • 6. Tracking Error – FTSE 100 Index (sideways market)
    * Source: Bloomberg 07/03/11 Past performance is not a guide to future performance
  • 7. Tracking Error – MSCI Emerging Markets Index (rising market)
    * Source: Bloomberg 07/03/11 Past performance is not a guide to future performance
  • 8. Enhanced Trackers
    Defined maturity SocieteGenerale debt instruments designed to track an index
    Eliminate Tracking Error
    • A defined payout at maturity directly linked to the index level with no tracking error
    Outperform the benchmark index
    • At maturity, the security pays the performance of the benchmark index plus 50-80bps per annum depending on size, maturity and index)
    Intra-day liquidity
    • Traded live on the LSE throughout the trading day, with defined bid-ask spread (SG are market- maker)
    Transparency
    • Execution levels based on index closing levels available upon request
    • 9. Credit risk of SocieteGenerale
  • Obtaining efficient exposure to rising commodity prices
  • 10. The Oil Price versus the S&P GSCI Oil Index
    • Prior to 2005, many
    benchmark commodity
    indices outperformed
    headline “spot” commodity
    prices
    • Since then, many
    commodity markets
    have persistently traded in
    contango, leading to
    underperformance of
    benchmark indices
  • 11. A closer look at oil in 2009 and 2010
    * Source: Bloomberg 07/03/11 Past performance is not a guide to future performance
  • 12. Comparing active and passive managers in rising markets
    * Source: Bloomberg 07/03/11 Past performance is not a guide to future performance
  • 13. Dynamics of the commodity futures market
    Contango
    When the prices for futures contracts are higher
    in the distant delivery months than in the nearer
    delivery months, the market is said to be in
    “contango.” This generally has a negative
    impact on index values, as the higher longer-term
    future prices move lower over time to the shorter-
    term prices. This potential convergence over
    time is often referred to as a negative “roll
    yield”.
    Backwardation
    When the prices for futures contracts are lower in the distant delivery months than in the nearer delivery months, the market is said to be in “backwardation.” Holding, backwardation generally has a positive impact on index values, as the lower longer-term future prices move higher over time to the shorter-term prices. This potential convergence over time is often referred to as a positive “roll yield”.
    More information about the roll and the indices is found on the S&P website.
  • 14. A closer look at WTI Crude Oil futures
    • Backwardation used to be more common – for example in
    March 2004.
    • Markets shifted into contango as demand for commodities
    rose. During the peak of the credit crisis, markets remained in
    contango as investors forecast a rebound in aggregate
    demand.
    • The recent events in North Africa and the Middle East have
    caused a price spike in the short-end, although futures are still
    in contango through much of 2011, and beyond 2014.
    • Through most of 2009 and 2010, markets remained in steep
    contango.
  • 15. Obtaining more efficient longer term exposure
    • Upon expiry, the payout equals the exact oil price
    • 16. No roll costs or tracking error
    • 17. Tradable live via the LSE
    • 18. Subject to SG credit risk
    Track a specific long-dated future rather than rolling short-term futures every month
    Examples:
    SG95 – tracking Dec 2013 Brent Crude Oil
    SG96 – £ hedged version of SG95
    Comparing the WTI and Brent Crude Oil futures curves
    * Source: Bloomberg 07/03/11 Past performance is not a guide to future performance
  • 19. Low cost asset allocation using an Exchange Traded Product
  • 20. Actively Managed Tracker
    An Exchange-traded product that tracks your asset allocation strategy
    • The Asset Manager allocates across pre-selected underlying assets, including equity indices,
    commodity and bond ETFs and cash.
    • The investor buys a single Exchange-traded product that closely tracks the portfolio of assets.
    • 21. The Asset Manager can make changes to the asset allocation at any time by simply sending an
    e-mail.
  • 22. Actively-managed Tracker – Features
    • Efficient asset allocation – allows asset managers to give their clients efficient access to their asset allocation model.
    • 23. Dynamic – Possibility to make daily changes to the portfolio, executed off closing levels.
    • 24. Simplicity – A single e-mail to SG is all that is needed to make changes to the asset allocation for all the investors that own the security.
    • 25. No Tracking Error – reduce tracking error by tracking equity indices directly, with payout and liquidity directly linked to the index.
    • 26. Low cost – Reduce costs by directly tracking equity indices, removing fund TER.
    • 27. Tax efficiency – Changes to the portfolio don’t result in a tax event. Investors can buy/sell units of the Tracker as required, e.g. to realise a capital gain or loss. Depending on the structure, the Tracker can be held in an ISA or SIPP, and taxable to CGT or income tax.
    • 28. Liquidity – Listed and quoted on the LSE – tradable live throughout the day. Quoted prices are in line with index level (no discount/premium), and with a defined bid-ask spread.
  • Actively-managed Tracker – Features (continued)
    • Access clients on different platforms – Clients need not invest directly through you – for example, the product can be held in a brokerage account, reducing costs.
    • 29. Prospecting tool – Allow potential investors to dip their toe in to your expertise – the security is traded like a share or ETF.
    • 30. Flexibility – can be used alongside traditional funds and discretionary portfolios, for example, when clients are looking to increase their investment between annual planning meetings, it is a simple low-touch way of getting invested in a diversified way quickly.
    • 31. Transparency – Easy for investors to instantly assess performance of an asset allocation strategy, and compare to alternatives. Return and risk data instantly available via Bloomberg.
    • 32. Flexible issuance platform – Asset managers can allocate across a pre-defined selection of assets including equity indices and ETFs giving access to every asset class.
    • 33. Revenue generation – Brokerage, performance and/or annual management fees can be built into the terms as required, and paid to the asset manager based on the assets invested in the tracker.
    • 34. Credit risk – SocieteGenerale – investors shouldn’t be over exposed to a single counterparty.
  • Important Information
    This document is issued in the UK by the London Branch of SociétéGénérale. SociétéGénérale is a French credit institution (bank) authorized by the Autorité
    de ContrôlePrudentiel (the French Prudential Control Authority). SociétéGénérale is subject to limited regulation by the Financial Services Authority in the UK.
    Details of the extent of our regulation by the Financial Services Authority are available from us on request.
     
    Although information contained herein is from sources believed to be reliable, SociétéGénérale makes no representation or warranty regarding the accuracy of
    any information. Any reproduction, disclosure or dissemination of these materials is prohibited.
    The product described within this document is not suitable for everyone. Investors' capital is at risk. Investors should not deal in this product unless they
    understand its nature and the extent of their exposure to risk. The value of the product can go down as well as up and can be subject to volatility due to factors
    such as price changes in the underlying instrument and interest rates.
    Prior to any investment in this product, you should make your own appraisal of the risks from a financial, legal and tax perspective, without relying exclusively
    on the information provided by us, both in this document and the Pricing Supplement of the product available on the website www.sglistedproducts.co.uk. We
    recommend that you consult your own independent professional advisors.
    Investors should note that holdings in this product will not be covered by the provisions of the Financial Services Compensation Scheme, nor by any similar
    scheme in Curacao.
    The securities can be neither offered nor transferred in the United States.
    The tax statement is only a general guide. The tax treatment of investments will depend on an individual’s circumstances. If investors are in any doubt as to
    their tax position, they must consult with an appropriate professional tax adviser. This statement of the UK tax treatment of the product is based on our
    understanding of the laws and practice in force as of the date of this document and is subject to any changes in law and the interpretation and application
    thereof, which changes could be made with retroactive effect.
    Lyxor and Lyxor ETFs are names used by SociétéGénérale to promote the products of Lyxor Asset Management
    All gains on the sale of Lyxor ETFs shares and dividend distributions made by Lyxor ETFs may be subject to tax on the basis of applicable tax regulations.
    Investors must seek their own Tax advice for any further information.
    The ETF maybe denominated in a currency different to that of the index that it tracks, which means that exchange rate fluctuations could have a
    negative effect on returns. ETF Trading Currency refers to the currency or currencies in which the ETF can be traded on the London Stock Exchange.
    Underlying Index Currency refers to the currency of the index tracked by the ETF. Through Lyxor ETFs, investors are exposed to counterparty risks resulting
    from the use of an OTC (Over-the-Counter) Swap with SociétéGénérale. In-line with UCITS guidelines, the exposure to the Swap Counterparty, Société
    Générale, cannot exceed 10% of the total fund assets. It is recommended that potential investors study the Prospectus before investing. This document is not
    aimed at persons who reside in the United States, Canada or any province or territory thereof, where the funds are not authorised or registered for distribution
    and where no prospectus for the funds has been filed with any regulatory authority. The complete prospectuses for all LSE-listed Lyxor ETFs are available
    online and can be downloaded from www.lyxoretf.co.uk
    For more information: see the Terms and Conditions available on our website www.sglistedproducts.co.uk