Legal & General UK Index: December 2020

Alexander Watkins | Mon 21 December 2020

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• Legal & General is one of the UK’s leading providers of passive funds
• We view this fund as an excellent option for accessing a broad range of UK sectors
• A low-cost and simple way to track the FTSE All-Share Index
• This fund currently features on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The Legal & General UK Index fund offers investors broad exposure to the UK market across various sectors. The UK is home to successful businesses that make money domestically, as well as across the globe. An index tracker fund is one of the simplest ways to invest, and we think this fund could be a great, low-cost starting point for a portfolio aiming to deliver long term growth. It could also be used to diversify an investment portfolio already focused on areas such as the US or emerging markets.

Manager

Legal & General has been running index tracker funds longer than most. It’s also one of the largest providers of tracker funds and has the biggest index 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.

Each equity index fund at Legal & General has a primary and secondary manager, though in practice the team as a whole helps to manage each fund. Alongside the wider team, Konstantins Golovnovs is the primary manager for this fund. He joined Legal & General in 2010 as a member of their graduate scheme, and has worked his way up to become a fund manager. The secondary manager is Michael Porte. He joined Legal & General in 2015 from Deutsche Bank Asset & Wealth Management, where he served as an ETF Manager.

Process

This fund tracks the performance of the broader UK stock market, as measured by the FTSE All-Share Index. It's currently made up of around 600 companies, focused towards sectors such as financials, consumer goods, industrials and consumer services. While the fund diversifies across the UK market, there is a heavier weighting towards larger companies as determined by the underlying index the fund is tracking.

The fund aims to invest in every company in the FTSE All-Share Index and in the same proportion. This is known as full replication and helps to closely match the performance of the index. There may be instances when it’s not possible or practical for the fund to invest in every company in the index. This is because it's sometimes difficult to buy and sell the smallest companies quickly or at low cost, and this could ultimately impact performance.

Legal & General is a conservative tracker fund manager. For example, they don't lend investments like some other companies do.

Culture

Legal & General has developed their passive fund range over the years. It has around £400bn invested in this part of the business, allowing it to offer a wide range of index-tracking options. It has 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 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.

The team running this fund works closely with various equity and risk departments across the business. We believe this provides support and adds challenge where appropriate.

Cost

The fund has an annual ongoing fund charge of 0.10%, but a discount of 0.06% is available for HL investors, which reduces the charge to 0.04%. We believe this is good value when compared with other UK passive funds. Our platform charge of up to 0.45% per annum also applies.

Part of the fund discount is achieved through a loyalty bonus, which could be subject to tax if held outside of an ISA or SIPP.

Performance

The Legal & General UK Index fund aims to track the FTSE All-Share Index and has done so well for over 20 years since launch. As you would expect from an index tracker fund, it’s fallen behind the benchmark over the long term because of the costs involved in running the fund. However, the tools used by the managers have helped to keep performance as close to the index as possible and reduced the fund’s tracking error to an average of 0.09% per annum in the last 10 years.

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

A glance at the five-year performance table below shows in some years the fund has 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. Remember, past performance isn’t a guide to future returns.

Past performance is not a guide to the future. Source: Lipper IM to 30/11/2020.

More on Legal & General UK Index, including charges

Legal & General UK Index key Investor Information