Legal & General US Index: March 2021 fund update
Alexander Watkins | Thu 25 March 2021
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- Legal & General is one of the UK’s leading providers of passive funds
- We think this fund is an excellent option for accessing a broad range of US companies
- The fund is a simple, low-cost way to track the FTSE USA 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 US Index fund offers investors broad exposure to a range of companies and sectors within the US. Given that the fund tracks the US market, it’s more heavily weighted in large technology companies such as Apple, Microsoft and Amazon. 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 exposure to the US. It could be used to provide diversification to an investment portfolio already focused on Europe and 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, Sacha Mirza is the primary manager responsible for a range of funds within both the UK and global equity regions. Sacha joined Legal & General in 2013 after previously working at UBS for 10 years and has significant index fund management experience. The secondary manager for this fund is Robert Dowling who joined Legal & General in 2010 after working for State Street Global Advisors as a fund manager, specialising in Asia-Pacific and global emerging markets.
Process
This fund tracks the performance of a basket of companies, as measured by the FTSE USA Index. It's currently made up of around 580 companies, focused on sectors such as technology, financials and consumer services. While the fund diversifies across the US, it’s still heavily weighted in technology companies which make up approximately 30% of the portfolio. This is determined by the underlying index the fund is tracking.
The fund aims to invest in every company in the FTSE USA Index and in the same proportion. This is known as full replication and helps to closely match the performance of the index. Derivatives may be used to help manage the fund efficiently, which can add risk. However, these usually make up a very small part of the portfolio.
Legal & General is a conservative tracker fund manager. For example, they don't lend investments like some other companies do.
Culture
Legal & General has continued to develop 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’s 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 ongoing annual fund charge of 0.10%, but a discount of 0.04% is available for HL investors, which reduces the charge to 0.06%. We believe this is good value when compared with other global passive funds. Our platform charge of up to 0.45% per annum also applies.
Performance
The Legal & General US Index Fund aims to track the FTSE USA and has done a good job since launch in 1992. 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 such as taxes and dealing charges. 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 0.07% per annum before the ongoing annual fund charge, 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.
The FTSE USA Index has done particularly well in the last 10 years returning around 320%*. This performance is partially down to the inclusion of technology companies in the index whose stock prices have seen a rally in recent years. Over the same timeframe, the Legal & General US index has returned 300% to investors. Remember, past performance isn’t a guide to future returns.
A glance at the five-year performance table below shows that in some years the fund has tracked the index closer than others.
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| Feb 16 -
Feb 17 |
Feb 17 -
Feb 18 |
Feb 18 -
Feb 19 |
Feb 19 -
Feb 20 |
Feb 20 -
Feb 21 |
|
| Legal & General US Index | 38.6% | 6.9% | 6.8% | 8.5% | 26.3% |
| FTSE USA Index | 39.3% | 7.4% | 7.0% | 9.3% | 26.7% |
Past performance is not a guide to the future. Source: *Lipper IM to 28/02/2021.