Legal & General Global Technology Index: December 2020

Alexander Watkins | Tue 22 December 2020

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• Legal & General is one of the UK’s leading providers of passive funds
• An excellent option for investing in companies from more developed and advanced emerging markets that are engaged in information technology
• A low cost way to invest into the FTSE World-Technology Index
• This fund does not currently feature on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

This fund invests in stocks from the FTSE World-Technology Index offering investors exposure to some of the biggest household names in software, computer services and technology. As a passive fund, it’s a simple and low-cost option. Due to its technology focus it’s highly concentrated in companies domiciled in the US. The fund could be a good addition to a portfolio with little invested in the US or with a lack of exposure to the technology sector.

Manager

Legal & General have been running index tracker funds longer than most. 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.

Tom Hammond manages the fund and has over 20 years of experience at Legal & General, with 16 of those within their index team. Each equity index fund at Legal & General has a primary (Hammond in this case) and secondary manager, who each have the ability to run the fund, along with the wider index team. The secondary manager for this fund is Tasos Kontos who joined Legal & General in 2010 after more than five years as Head of Index Design at the FTSE Group.

Process

The fund invests in every company in the FTSE World-Technology Index. It does this through full replication by investing in all the stocks in the index in the same proportion. This helps to closely match the performance of the index. The fund currently invests around 95% of its value in software, computer services, technology hardware and equipment companies.

The top ten holdings at the end of October accounted for 54.88% of the portfolio with Apple and Microsoft taking first and second place at 15.60% and 12.87% weightings respectively.

In any index tracker fund, factors like withholdings taxes, dealing commissions and spreads, and the cost of running the fund all drag on performance. To keep the fund in line with the index the team will set tracking error targets, which measure how closely it's tracking its benchmark. These are monitored by Legal & General on a daily and monthly basis to ensure the fund is being run efficiently.

Culture

Legal & General have continued to develop their passive fund range over the years. They’ve 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.

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 recently reduced its ongoing annual fund charge from 0.32% to 0.20%. This is positive news for investors as it will allow the fund to track its benchmark more closely. We believe this is a reasonable charge when compared with other technology tracker funds in this sector. Our platform charge of up to 0.45% per annum also applies.

Performance

The Legal & General Global Technology Index fund aims to track the FTSE World-Technology Index and has done since its launch in November 2000. Over the last 20 years it’s delivered a return of 227.02%, versus 325.12%* for the index. Past performance is not a guide to the future.

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 methods employed by the managers to reduce the fund’s tracking error have limited it to an average of 0.41% per annum since its launch.

The fund has provided strong returns for its investors, particularly over the last five years. This can be attributed to the growth of some of the technology companies included in the index. Some companies within the technology sector have benefited from the acceleration of existing trends as a result of forced changes to our lives from coronavirus.

While this is a global technology tracker fund, around 80% of the fund’s assets are invested in the US meaning it’s likely to be more responsive to economic and policy changes in the US than elsewhere in the future.

Given Legal & General’s size, experience and expertise running index tracker funds, we expect the fund to continue to track the index well. 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 Global Technology Index, including charges

Legal & General Global Technology Index key Investor Information