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Investment objective:
The investment objective of OSSIAM EMERGING MARKETS MINIMUM VARIANCE NR fund (the “Fund”) is to replicate, before the Fund’s fees and expenses, the performance of the Ossiam Emerging Markets Minimum Variance Index Net Return USD closing level.
The Ossiam Emerging Markets Minimum Variance Index Net Return USD (the “Index”) is a total return index (net dividends reinvested) expressed in USD, calculated and published by S&P Dow Jones Indices LLC (the “Index Provider”) specifically for Ossiam as a customiszed index. For a detailed description of the Index, see section “Description of the Index”.
The anticipated level of tracking error in normal conditions is 1% 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 portfolio of assets held by the Fund shall be permanently invested for a minimum of 60% in equities or rights issued by companies having their registered office in OECD countries. 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 specializses 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 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 investment objective of the Fund is to replicate an index which is based on a quantitative model implementing a rules-based approach. As a result, the Management Company does not undertake any assessment of investments and, in particular, does not consider the adverse impact of investment decisions on sustainability factors as defined in Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector (the “SFDR”).
The Reference Currency of the Fund is the US Dollar.
Description of the Index:
General Description
The Ossiam Emerging Markets Minimum Variance Index reflects the performance of a dynamic selection of the most liquid among the largest stocks from the S&P/IFCI (R)Index (the “Base Index”) which tracks the performance of leading companies in 20 emerging countries.
Constituents of the Index will be weighted according to an optimiszation procedure. As such, sector, company, country and currency exposures in the Index will differ from those of the Base Index.
Index Methodology
The Index composition will be reconstituted on a semi-annual basis. At each rebalancing date, the universe of eligible stocks is a selection of the most liquid stocks (based on their recent average daily traded amounts on their respective primary exchange) among the largest companies (in terms of free float market capitaliszation) in the Base Index.
The optimiszation procedure uses statistical inputs such as estimates of the historical volatility of eligible stocks and their degree of correlation and seeks to minimisze 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 3.50% 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,
* the maximum exposure to a country shall not exceed 20% of the current value of the Index,
* a dispersion method ensures that a significant number of stocks are included in 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.
No fees are charged at the Index level when changes are made to the composition of the Index.
Income derived from the Fund is distributed for distributing Shares and reinvested for accumulating Shares, as further detailed in this Appendix. 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 on emerging markets while consistently integrating environmental, social and governance (“ESG”) matters.
The Fund is an actively managed UCITS ETF.
Investment policy:
In order to achieve its investment objective, the Fund will primarily invest in all or part of the equity securities and depositary receipts which are selected by applying the investment strategy described below. Alternatively, the Management Company may choose an adequate proxy, including but not limited to depositary receipts, futures, depositary receipts, UCIs compliant with Article 41(1)(e) of the Law of 17 December 2010 relating to undertakings for collective investment, as amended from time to time (up to 10%).
The Fund will be invested for a minimum of 60% in equities or rights issued by companies which are listed in emerging markets (including China and Russia). The Fund will also invest in Depositary Receipts.
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 US Dollar.
The Fund is actively managed and uses its benchmark, the Solactive GBS Emerging Markets (the “Benchmark”) for asset allocation and performance comparison purposes.
It is foreseen that a significant portion of the Fund’s portfolio will be components of the Benchmark. However, the portfolio’s weightings may deviate significantly from those of the Benchmark.
Investment strategy:
The Fund’s investment universe consists of the securities from the Benchmark (the “Investment Universe”).
In order to achieve its investment objective, the Management Company uses its proprietary quantitative model which implements a rules-based approach that aims to assess the securities from the Investment Universe.
The model uses ESG data provided by leading data providers, such as Sustainalytics or Trucost (the “ESG Providers”) as raw input to the “Normative and Exclusion filter” to exclude securities that are not aligned with the ESG and human rights objectives of the Fund (as further detailed in the Transparency Code available on the Management Company’s website www.ossiam.com):
– Are involved in the controversial weapon business (eg, cluster munitions or chemical weapons);
– Undergo high-risk controversies;
– Are not compliant with the Ten Principles of the UN Global Compact;
– Have significant operations in the Tobacco or Thermal Coal industries; or
– Have a significant part of their electricity production generated from thermal coal.
The model also uses ESG data as inputs in its quantitative model to apply a “Best-In-Class filter” which consists in eliminating the 20% worst ESG rated stocks from the Investment Universe in each relevant bucket, such as each sector and each country. The ESG rating that is used for this filter is an aggregated score that may be computed by the Management Company using ESG granular scores (provided by ESG Providers) on key ESG indicators that are relevant to the investment strategy.
Only the most liquid securities that pass the Best-In-Class filter and the Normative and Exclusion filter may be selected to constitute 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 applies an optimisation procedure to select and weight certain securities in order to optimise the trade-off between the expected variance and the expected risk-adjusted performance of the resulting portfolio 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 3.5% of the current value of the portfolio;
– The maximum difference between weights of countries represented in the portfolio and the relative weights in the Investment Universe shall not exceed 20% of the current value of the portfolio;
– Total greenhouse gas emissions shall be 50% lower than the emissions related to the Investment Universe;
– Potential greenhouse gas emissions from reserves shall be 50% lower than the potential emissions related to the Investment Universe; and
– ESG rating is targeted to be equal or greater than the ESG rating of the Benchmark (based on ESG ratings for each company).
Non- financial analysis based on ESG data shall be applied on at least 90% of the resulting portfolio.
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 50% limit on Total greenhouse gas emissions).
The Management Company performs the rebalancing of the Fund’s portfolio on a semi-annual basis.
Capital gains and net income of the Fund will be capitalised 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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