Inflation Expectation


Two ETFs for Lyxor in Milan: inflation expectations and Euro Stoxx 50

Lyxor will be cross listing two ETFs in Italy, one of which tracks inflation expectations; the other of which is a plain vanilla Euro Stoxx ETF.

The inflation expectations ETF (INFL), is a curiosity and takes a bit of a fiddle to get one’s head around. INFL tracks inflation expectations by buying and holding inflation-linked bonds while shorting sovereign bonds. How does that track inflation expectations? Well, in theory, as inflation expectations rise the prices of sovereign bonds should fall (as they have no inflation protection, no-one who thinks inflation will rise will want them). The falling value of sovereign bonds should mean that shorting them pays off and thus the fund makes gains as inflation expectations rise.

The plain vanilla ETF is more straightforward. The Lyxor Euro Stoxx 50 UCITS ETF (MSED) will track the Euro Stoxx 50 a very popular benchmark, which represents 50 blue-chip stocks from the Eurozone. It will track its benchmark by buying the stocks in the index – not through swaps.