Legal & General International Index: April 2020 fund update

Jonathon Curtis | Mon 11 May 2020

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Legal & General is one of the UK’s best index tracker fund providers
A great passive option for adding international diversification to a portfolio
One of the lowest cost global tracker funds available

How it fits in a portfolio

This fund invests in companies from all the major stock markets of the world, except the UK. This makes it a convenient way to invest globally without adding any more exposure to the UK.

Manager

Legal & General have over three decades of experience running index tracker funds. They’re also one of the largest providers of passive funds and have the biggest index team in the UK. That means they’ve got the resources and expertise to track indices as closely as possible, and the scale to keep charges to a minimum. We think they’re one of the best providers of index trackers around.

Process

The fund aims to mirror the FTSE World (excluding UK) index, which is made up of mainly developed markets such as the US, Japan and Europe, but also includes higher-risk advanced emerging economies too. Given the size and strength of the US stock market over recent years, American companies currently make up more than half of the index.

The fund invests in nearly all the companies within the index, meaning there are well over 2000 holdings in the portfolio. To keep costs down though, it often emits some of the smallest companies that are difficult to trade and have little impact on the performance of the overall index.

In any index tracker fund, things like withholdings taxes, dealing commissions and spreads, and the cost of running the fund all drag on performance. To try and bring it back more in line with the index, the team lends stocks in return for a fee, and can use derivatives, which if used adds risk.

Culture

Legal & General has become synonymous with passive funds. They’re got around £400bn invested in this part of their business, allowing them to offer a wide range of index-tracking options. They’ve built a team of experienced passive fund specialists and they’re innovative too. If an index doesn’t exist for a sector they’d like to track, they’ll often work with index providers like FTSE Russell to create one so they can track it.

We also admire Legal & General’s commitment to encouraging good corporate practices among the companies they invest in. They proactively engage with businesses and use proxy voting rights to highlight important matters like environmental, social and governance issues.

Cost

The fund is available for an annual ongoing charge of 0.08%. This is lower than the standard 0.13% charge as we’ve negotiated a lower rate for HL clients. We think this is excellent value for a global tracker option run by a provider we rate highly. Our platform charge of up to 0.45% p.a. also applies.

Performance

The fund has tracked the FTSE World ex UK index very closely since it launched in 2008. It’s fallen slightly behind the benchmark due to the costs involved, but this is to be expected from any index tracker fund. What matters is how much it’s fallen behind over the long-term. With this fund we’re pleased to say it’s not by much.

Given Legal & General’s size, experience and expertise running index tracker funds, we’d expect this to continue, although there are no guarantees how closely the fund will track the index over each short-term period. A glance at the 5-year performance table below shows in some years it can be more than others. On occasion the fund may even end up slightly ahead of the index due to the strategies used by the team, although investors shouldn’t count on this happening and past performance is not a guide to the future. Like all investments, this fund can fall in value as well as rise so investors could get back less than they invest.

Legal & General International Index Performance

Past performance is not a guide to the future. Source: Lipper IM to 30/04/2020.

Annual percentage growth
	Apr 15 - Apr 16	Apr 16 - Apr 17	Apr 17 - Apr 18	Apr 18 - Apr 19	Apr 19 - Apr 20
Legal & General International Index	0.4%	31.5%	7.7%	10.7%	0.5%
FTSE World ex UK	1.1%	31.8%	7.4%	12.3%	0.0%