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Investment objective:
The Fund's objective is to replicate, before the Fund's fees and expenses, the performance of the iSTOXX(R) Europe Minimum Variance Index Net Return closing level.
The iSTOXX(R) Europe Minimum Variance Index Net Return (the "Index", ISIN: CH0124001543 ) is a total return index (net dividends reinvested) expressed in EUR, calculated and published by STOXX (the "Index Provider") and initiated by Ossiam. For a detailed description of the Index, see section "Description of the Index".
The anticipated level of tracking error in normal conditions is 0.50% over a one-year period.
Investment policy:
In order to achieve its investment objective, the Fund will primarily use index swaps with the objective of gaining exposure to the Index through synthetic replication. In that case, the Fund will invest in a portfolio of assets, the performance of which will be exchanged against the performance of the Index through swap agreements with a swap counterparty. This method implies a counterparty risk as described in the below Risk and Reward Profile. The net asset value per Share of the Fund will therefore increase (or decrease) according to the evolution of the Index. The counterparty to the swaps will be a first class financial institution that specializes in this type of transaction. The Fund may also enter into multiple swap agreements with multiple swap counterparties with the same characteristics as previously described. In case of synthetic replication, an index license contract may exist between the swap counterparty (ies) and the index provider; therefore, licensing fees may be included in the swap costs.
Alternatively, the Fund may invest in all or part of the equity securities comprised in the Index.
The Fund may, with due regard to the best interest of its Shareholders, decide to switch partially or totally from one of the above described policies to the other (i.e. synthetic replication vs. physical replication).
In both replication strategies, the Fund shall be permanently invested for a minimum of 75% in equities securities or rights issued by companies having their registered office in the European Economic Area, excluding Liechtenstein.
In addition and on an ancillary basis, the Fund may use other derivatives for hedging and investment purposes and enter into securities lending and borrowing transactions as well as repurchase agreement transactions, as described under "Use of Derivatives, Special Investment and Hedging Techniques" in the Prospectus.
The Reference Currency of the Fund is the Euro.
Description of the Index:
General Description
The iSTOXX(R) Europe Minimum Variance Index reflects the performance of a dynamic selection of the 300 most liquid stocks from the STOXX(R) Europe 600 Index (the "Base Index") which tracks the performance of 600 leading companies in major European industries in 18 European countries.
Constituents of the Index will be weighted according to an optimization procedure performed by the Index Provider. As such, sector and company exposures in the Index will differ from those of the Base Index.
Index Methodology
The Index composition will be reconstituted on a monthly basis subject to certain provisions and composition restrictions. Only the 300 most liquid stocks (based on their recent average daily volumes on their respective primary exchange) are eligible for inclusion in the Index.
The optimization procedure uses statistical inputs such as estimates of the historical volatility of eligible stocks and their degree of correlation
and seeks to minimize the expected volatility of the Index. The resulting Index composition must comply with the following constraints (at the time of reconstitution):
* the Index must be fully invested,
* the maximum exposure to a single stock shall not exceed 5% of the current value of the Index,
* the maximum exposure to an industry sector shall not exceed 20% of the current value of the Index,
* a proprietary method ensures that a significant number of stocks are included in the Index.
No Fees are charged at the Index level when changes are made to the composition of the Index.
The Index will be calculated and published on a real time and end-of-day basis by the Index Provider using the latest available prices and number of units of each Index constituent. The Index Provider may adjust the number of units of each constituent due to corporate actions (such as stock splits, stock dividends, spin-offs and rights offerings) in accordance with its standard methodology for the Base Index.
Capital gains and net income of the Fund will be capitalized and no dividend will be payable to Shareholders except for the distributing Shares for which all or part of the capital and/or income may be distributed once or several times a year as may be decided by the Board of Directors. Please refer to the Prospectus for additional information.
The recommended investment horizon is 5 years.
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Investment objective:
The objective of the Fund is to deliver the net total return of a selection of equities which are listed in Europe.
The Fund is an actively managed UCITS ETF.
Investment policy:
In order to achieve its investment objective, the Fund can use total return swaps with the objective of delivering synthetically the performance of a portfolio of equities which are selected and weighted as detailed under the investment strategy. This method implies a counterparty risk as described in the below Risk and Reward Profile. The net asset value per share of the Fund will therefore increase (or decrease) according to the evolution of the portfolio of equities. The counterparty to the swaps will be a first class financial institution that specializes in this type of transaction. The Fund may also enter into multiple swap agreements with multiple swap counterparties with the same characteristics as previously described.
Alternatively, the Fund can invest directly in all or part of the equity securities which are selected by applying the investment strategy described below.
In any case, the Fund will be invested in for a minimum of 75% in equities or rights issued by companies having their registered office in the European Economic Area, excluding Liechtenstein.
In addition and on an ancillary basis, the Fund may use other derivatives for hedging and investment purposes as described under "Use of Derivatives, Special Investment and Hedging Techniques" in the Prospectus.
The Reference Currency of the Fund is the Euro.
The Fund is actively managed and will only use its benchmark, the Solactive Europe 600 Index NTR (the "Benchmark") for performance and carbon emission comparison purposes. The Fund's portfolio composition is therefore not constrained by the Benchmark.
The Management Company may invest in securities not included in the Benchmark based on the active Investment Strategy further described below. The Fund's holdings may deviate significantly from the Benchmark's constituents, as the Benchmark will not be used as a universe from which to select securities.
Investment strategy:
The Fund seeks to achieve its investment objective by investing primarily in a dynamic selection of equities listed in Europe (the "Investment Universe"). The Investment Universe is made up of the largest stocks with ESG (Environment, Social, Governance) data which are listed and traded on the major exchanges including but not limited to the following countries: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom. The list of countries can be changed from time to time to take into account structural changes in each market.
In order to achieve its investment objective, the Management Company uses a quantitative model which implements a rules-based approach that aims to assess the securities from the Investment Universe.
The model uses ESG (Environment, Social, Governance) data provided by leading data providers, such as Sustainalytics or Trucost, (the "ESG Providers") as inputs in its quantitative model to first apply, to 90% minimum of the portfolio, an "Ethical Filter" to exclude securities from the Investment Universe that:
- undergo high-risk controversies;
- are involved in controversial weapons business (e.g., cluster munitions or chemical weapons);
- have significant operations in the tobacco or coal industries (based on an assessment by the ESG Providers);
- are not compliant with the Ten Principles of the UN Global Compact (https://www.unglobalcompact.org/what-is-gc/mission/principles);
- are referenced in major Scandinavian institutions' (such as Norges Bank) publicly available exclusion lists; or
- for stocks that are involved in the electricity production sub-sector, those that have more than 20% of their production from coal-fired plants.
Securities that pass the Ethical Filter are then screened through a liquidity filter (the "Liquidity Filter") to exclude the least liquid stocks.
Securities that pass the Liquidity Filter are screened according to the Management Company's quantitative model, based on machine learning techniques. The Management Company's quantitative model aims to identify securities which represent potential investment opportunities as opposed to potential investment risks. More precisely, the model uses machine learning techniques to integrate and process a very large set of ESG and financial data and to select the patterns that show a significant link between ESG characteristics and financial performance for the securities in the Investment Universe. The model does this through quantitative statistical analysis which includes an analysis of the previous results from the model compared to actual performance. The model uses this comparison to refine continuously the quantitative statistical analysis techniques.
The outcome of the machine learning process consists of a classification of eligible securities (i.e., securities from the Investment Universe that pass the Liquidity Filter) into those that, on balance, represent an "investment opportunity" (i.e., securities that, given their ESG profile, have a positive outlook) and those that, on balance, represent an "investment risk" (i.e., securities that, given their ESG profile, have a negative outlook). Securities that are classified as "investment risk" are excluded from the Investment Universe, with the remaining securities (i.e., those classified as "investment opportunity") being the "Eligible Universe".
The Management Company analyses the historical volatilities of the price of each security in the Eligible Universe as well as the historical correlations among them. It then selects and weights certain securities so that the resulting portfolio has minimum expected volatility while complying with the following constraints (at the time of reconstitution):
- The portfolio must be fully invested, no short selling;
- The maximum exposure to a single stock issuer shall not exceed 4.5% of the current value of the portfolio;
- The maximum exposure to an industry sector shall not exceed 20% of the current value of the portfolio;
- The maximum exposure to stock classified as REITS (Real Estate Investment Trusts) or stocks issued by companies which do not have their registered office in the European Economic Area shall not exceed 20% of the current value of the portfolio;
- Total greenhouse gas emissions must be 40% lower than the emissions related to the Benchmark as defined above in the Investment Policy, (based on an assessment of the absolute value of the previous year's carbon emissions data for each company);
- Potential greenhouse emissions from reserves must be 40% lower than the potential emissions related to the Benchmark (based on an assessment which uses potential emissions figures calculated using the previous year's oil reserve data of each company, where applicable); and
- ESG rating must be at least 10% higher than the ESG rating of the Benchmark (based on ESG ratings for each company).
In certain market conditions, the composition of the equities in the Eligible Universe may make it impossible to perform the weighting optimisation while complying exactly with the list of constraints above. In such circumstances, the Management Company can rateably reduce some of the constraints (for example, by gradually reducing the 40% limits).
The Management Company performs the rebalancing of the Fund's portfolio on a quarterly basis. In addition, the Management Company may re-adjust on an ad hoc basis as deemed necessary.
Capital gains and net income of the Fund will be capitalized and no dividend will be payable to Shareholders except for the distributing Shares for which all or part of the capital and/or income may be distributed once or several times a year as may be decided by the Board of Directors. Please refer to the Prospectus for additional information.
The recommended investment horizon is 5 years.
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