Legal & General All Stocks Gilt Index: May 2020 fund update

Joseph Hill | Fri 05 June 2020

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• A more conservative way to invest in bonds backed by the UK government
• Legal & General has a good record of running tracker funds and is a provider we rate highly
• Could be a good option to add diversification to a broader investment portfolio
• This fund is on our Wealth 50 list of funds chosen by our analysts for their long-term potential

How it fits in a portfolio

The fund invests in a broad spread of UK government bonds, also known as gilts. Gilts could provide some diversification to most portfolios, particularly those already invested in equities, and are a conservative way to invest in bonds. They pay an income, but this tends to be lower than corporate bonds.

Manager

Legal & General has been running index tracker funds longer than most, with a record spanning more than 30 years. It's one of the largest providers of tracker funds and is home to the biggest index tracker team in the UK. That means it's got the resources and expertise to track indices as closely as possible, and the scale to keep charges to a minimum. We think Legal & General is one of the best providers of index trackers around.

Process

The fund aims to track the performance of the UK Gilt market as measured by the FTSE Actuaries UK Gilts All Stocks Index. It aims to do this by investing in every bond in the FTSE Actuaries UK Conventional Gilts All Stocks Index and in the same proportion, a process called full replication which should help it track the index closely.

Legal & General is a fairly conservative tracker fund manager and the All Stocks Gilt Index fund doesn’t lend investments. They look for other opportunities to reduce costs though, like when they rebalance the fund to match the index, or by reinvesting dividends.

The fund is currently made up of 45 bonds, with varying maturities, this is the same number of investments as the index. In any index tracker fund, things like dealing commissions, spreads and the cost of running the fund all drag on performance. The fund may use derivatives to generate additional capital or income which can add risk.

Culture

Legal & General has become synonymous with passive funds. It has around £400bn invested in its passive funds , allowing them to offer a wide range of index-tracking options. It has also built a team of experienced index tracker fund specialists, and they're prepared to be innovative. 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.

Cost

The fund is available for an annual ongoing charge of 0.1% after a 0.05% saving negotiated by HL. This is lower than the standard 0.15% charge. We think this is excellent value for a Gilt tracker option run by a provider we rate highly. Our platform charge of up to 0.45% per year also applies.

Performance

The fund has done a good job of tracking the FTSE Actuaries UK Gilts All Stocks Index since its launch. It's also tracked the index very closely over shorter periods, though over the long run it’s slightly behind the benchmark due to the costs involved. This is to be expected from an index tracker fund.

Given Legal & General’s size, experience and expertise running index tracker funds, we expect the fund to continue to track the index closely in future, though there are no guarantees how it will perform.

In some years the fund has tracked the index closer than others. On occasion it could even end up slightly ahead of the index due to the strategies used by the team, although this won't necessarily happen and isn’t an aim of the fund.

Past performance isn’t a guide to the future. Source: Lipper IM to 30/04/2020.

More on Legal & General All Stocks Gilt Index, including charges

Legal & General All Stocks Gilt Index key investor information