07 Nov 2019
07 Nov 2019
Millennial money matters. Half the world’s population is now under 301, and this huge cohort is predicted to becomeincreasingly wealthy, growing in purchasing power from workplace earnings and inheritances from baby-boomer parents.They stand to inherit as much as USD 30 trillion by 2050 in North America alone, benefiting from a hugeintergenerational transfer of wealth.2
Yet, millennials - and the younger Gen Z generation - have notably different spending habits and priorities than theirparents. For one, they are more worried about deteriorating environmental conditions, and eager to make a positiveimpact, even at a cost to their own comfort. A survey by the World Economic Forum revealed that 78% of people aged 18-30would be prepared to “change their lifestyle to protect nature and the environment”,1 echoing a recent US survey whichshowed that about 55% of millennials working with a financial adviser had discussed environmental, social and governance(ESG) investing, compared to just 25% of Gen Xers, and 11% of baby boomers.3
However, for millennials (or any other generation) wanting to make a direct impact with their money, impact investinghas historically been a difficult proposition. Until recently, it involved financing unlisted companies or fundingprojects through loans. Such large and illiquid investments are difficult for individual investors to access. And goodintentions can only go so far – if someone lacks the necessary knowledge, it will be a challenge to evaluate whether acertain project or company is likely to be financially successful and effective at making a difference.
But times are changing – fast. More and more people are putting their money to work sustainably through much simplermeans: exchange-traded funds (ETFs). So far this year, sustainable ETFs in Europe have seen €11.5bn of inflows – almostthree times as much as the €4bn recorded for all of 2018.4 Millennials are early adopters of ETFs and twice as likely toinvest in ETFs than baby boomers, according to Accenture.5
ETFs are the posterchild for simple and democratised investing, giving investors of all sizes access to a wide range ofmarkets, asset classes and strategies. ESG and sustainable investing is no exception. The initial investment needed ismuch lower than what’s usually required to directly fund environmental or social projects, or to invest in unlistedfirms. By investing in ETFs to support gender equality or climate-friendly projects, millennials can start using theirspare change to build sustainable portfolios with confidence and ease.
ETFs are also scalable. They’re well-suited to technology-based forms of distribution and execution – yet another reasonfor their proven popularity with tech-savvy millennials. According to Accenture’s findings, two-thirds of millennialswant some form of self-directed investment portal, while only 30% of Generation-X and baby-boomers do.5 ETFs areparticularly suitable for robo-advisory services, the construction of digital portfolios and digital order routing.
In short, doing well by doing good becomes more than a pretty slogan with ethical ETFs. Beyond their potential forperformance, ETFs also serve to democratise access to impact investments and are well-suited for technology-basedsolutions. For the millennial generation, that’s a match made in heaven.
Lyxor offers ETFs that both create value for investors and mobilise capital towards companies involved in solvingsocietal and environmental problems. Of the United Nations’ 17 Sustainable Development Goals (SDGs), we offer solutionsthat tackle four.
In 2017, we were the first asset manager to pioneer a green bond ETF. As its name suggests, the fund invests in bondswhose proceeds are earmarked for pro-climate projects. In addition to investing in investment-grade bonds rigorouslyassessed and approved by the Climate Bonds Initiative, it offers investors a low-cost and transparent way to ease thetransition to a low-carbon economy. Clients have responded well to our unique vehicle, which so far has accumulated over$160m in assets.4
Our gender equality ETF – the first of its kind in Europe – offers investors the chance to direct capital towardscompanies leading the charge to a more equitable world for women in the workforce. Why should companies care about fairrepresentation? The business impact is beneficial, whether through talent acquisition and retention, customer insight,and better governance, to name a few. And investors will be happy to know that you can still do well by doing good. Onestudy by McKinsey showed that gender-diverse companies were 21% more likely to outperform their peers on EBIT margin, ameasure of profitability.6
Lyxor’s first sustainable ETF – the Lyxor World Water UCITS ETF, launched back in 2007 – helps investors tackle waterscarcity, as water consumption continues to outpace population growth. The fund invests in global companies which deriveat least 40% of their revenue from water infrastructure, utilities or treatment activities. We believe the waterscarcity challenge can be alleviated by directing capital towards these sectors, thereby facilitating capex throughreduced cost of capital.
Also launched in 2007, the Lyxor New Energy UCITS ETF invests in companies from around the world involved in activitiessuch as renewable energy, distributed energy or energy efficiency. According to the UN, energy is the dominantcontributor to climate change, accounting for around 60% of total global greenhouse gas emissions.7 The opportunity forinvestors is hard to ignore – the share of renewable energy in the global energy generation market is expected to growat a compound annual growth rate of 8.5% between 2019-2027.8
1World Economic Forum, Global Shapers Survey, http://www.shaperssurvey2017.org/static/data/WEF_GSC_Annual_Survey_2017.pdf
2Accenture, 2012, The “Greater” Wealth Transfer: Capitalizing on the Intergenerational Shift in Wealth
3Allianz Life, ESG Investor Sentiment Survey, May 2019, https://www.allianzlife.com/-/media/files/allianz/pdfs/esg-white-paper.pdf
4Source: Lyxor International Asset Management. Data as at 31/10/2019.
5Accenture, Millennials & Money, https://www.accenture.com/t20171219T131118Z__w__/us-en/_acnmedia/PDF-68/Accenture-Millennials-and-Money-Millennial-Next-Era-Wealth-Management.pdf
6McKinsey, Delivering through Diversity, Jan 2018. Financial performance analysis showed that top-quartile companies were 21% more likely than fourth quartile companies to outperform national industry peers on EBIT margin, but also were 27% more likely than fourth quartile companies to have industry-leading performance on longer-term value creation, as measured using economic profit margin (Net Operating Profit Less Adjusted Taxes – [Invested Capital x Weighted Average Cost of Capital]). Analysis performed on over 1,000 companies in 12 countries. Past performance is not a reliable indicator of future results.
7UN SDG website, as at October 2019.
8Source: RobecoSAM, Alternative Energy RobecoSAM Quarterly Update Q1 2019.
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 2014/65/EU. These products comply with the UCITS Directive (2009/65/EC). Société Générale and Lyxor International Asset Management (LIAM) recommend that investors read carefully the “investment risks” section of the product’s documentation (prospectus and KIID). The prospectus and KIID are available free of charge on www.lyxoretf.com, and upon request to firstname.lastname@example.org.Except for the United-Kingdom, where this communication 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, this communication is issued by Lyxor International Asset Management (LIAM), a French management company authorized by the Autorité des marchés financiers and placed under the regulations of the UCITS (2014/91/EU) 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).
The products mentioned are the object of market-making contracts, the purpose of which is to ensure the liquidity of the products on 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 is of a commercial nature and not of a regulatory nature. This material is of a commercial nature and not 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.
Lyxor International Asset Management (“LIAM”) or its employees may have or maintain business relationships with companies covered in its research reports. As a result, investors should be aware that LIAM and its employees may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Please see appendix at the end of this report for the analyst(s) certification(s), important disclosures and disclaimers. Alternatively, visit our global research disclosure website www.lyxoretf.com/compliance.
Conflicts of interest
This research contains the views, opinions and recommendations of Lyxor International Asset Management (“LIAM”) Cross Asset and ETF research analysts and/or strategists. To the extent that this research contains trade ideas based on macro views of economic market conditions or relative value, it may differ from the fundamental Cross Asset and ETF Research opinions and recommendations contained in Cross Asset and ETF Research sector or company research reports and from the views and opinions of other departments of LIAM and its affiliates. Lyxor Cross Asset and ETF research analysts and/or strategists routinely consult with LIAM sales and portfolio management personnel regarding market information including, but not limited to, pricing, spread levels and trading activity of ETFs tracking equity, fixed income and commodity indices. Trading desks may trade, or have traded, as principal on the basis of the research analyst(s) views and reports. Lyxor has mandatory research policies and procedures that are reasonably designed to (i) ensure that purported facts in research reports are based on reliable information and (ii) to prevent improper selective or tiered dissemination of research reports. In addition, research analysts receive compensation based, in part, on the quality and accuracy of their analysis, client feedback, competitive factors and LIAM’s total revenues including revenues from management fees and investment advisory fees and distribution fees.