Legal & General UK 100 Index: June 2020 fund update

Dominic Rowles | Tue 30 June 2020

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• Legal & General is home to an expert team of index tracker fund managers and analysts
• We think this fund is an excellent way to invest in some of the UK's biggest businesses
• The fund's low charges should help it track its index closely
• We've added this fund to the Wealth Shortlist of funds chosen by our analysts for their long-term potential

How it fits in a portfolio

This is a low-cost and easy way to invest in some of the UK's best-known and largest businesses – household names from Shell and BP to Lloyds Banking Group and Unilever. An index tracker fund is one of the simplest ways to invest, and we think this fund could be a good addition to a portfolio aiming to deliver long-term growth. It could also be a good addition to a portfolio of other tracker funds.

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.

We previously removed this fund when we created the more focused Wealth 50. Having listened to client demand, we are increasing our options for passive UK equity exposure. We always retained our conviction in the fund.

Process

This fund aims to track the performance of the largest UK companies, as measured by the FTSE 100 Index. It's made up of around 100 companies, focused towards sectors such as oil & gas, healthcare and financials. While these companies are based in the UK, many sell their products and services across the globe, so they're not solely reliant on the UK economy to be successful.

The fund invests in every company in the FTSE 100 Index, and in the same proportion. This is called full replication and could help the fund track the performance of the index closely. Legal & General is a fairly conservative tracker fund manager and the UK 100 Index 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.

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 more in line with the index, the team can use derivatives. The use of derivatives adds risk.

Culture

Legal & General has become synonymous with passive funds. It has around £400bn invested in this part of the business, 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.

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 0.06% after a 0.04% saving negotiated by HL. This is lower than the standard 0.10% charge. We think this is excellent value for a FTSE 100 tracker run by a provider we rate highly. Our platform charge of up to 0.45% per year also applies.

Performance

The fund's tracked the FTSE 100 well since launch in 1993. It's tracked particularly well over shorter periods, although over the long run it's fallen behind due to the costs involved. That's to be expected from a tracker fund.

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

The five-year performance table below shows in some years the fund tracked the index closer than others. On occasion it has even ended up slightly ahead of the index due to the strategies used by the team, although this won't necessarily happen in future and isn’t an aim of the fund.

All investments can fall as well as rise in value, so you could get back less than you invest.

Past performance is not a guide to the future. Source: Lipper IM to 31/05/2020.

The performance data in the above table for May 2019-May 2020 has been corrected. We had previously shown +11.1% and +11.8%.

More on Legal & General UK 100 Index, including charges

Legal & General UK 100 Index Key Investor Information