Legal & General Future World ESG Developed Index: June 2021 fund update
Dominic Rowles | Mon 14 June 2021
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- Legal & General is home to an expert team of index tracker fund managers and analysts
- We think this fund offers an attractive blend of responsible and passive investing
- It could be a good addition to a broader responsible investment portfolio
- This fund is on the Wealth Shortlist of funds chosen by our analysts for their long-term performance potential
How it fits in a portfolio
We think this fund is a good option for broad exposure to global stock markets, while being mindful of environmental, social and governance (ESG) issues. An index tracker fund is one of the simplest ways to invest, and we think this fund could be a good addition to a broader investment portfolio aiming to deliver long-term growth in a responsible way. 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. 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
This fund aims to track the performance of the Solactive L&G ESG Developed Markets Index. It's made up of almost 1,400 companies based across global developed markets, such as the US, the UK and Japan, and diversified across lots of sectors, including technology, healthcare and financials. The fund invests in the same companies as the index.
The index increases investments in companies that score well on a variety of ESG criteria – from the level of carbon emissions generated, to the number of women on the board and the quality of disclosure on executive pay. It also reduces exposure to companies that score poorly on these measures.
The advantage of reducing investments in poorly-scoring companies, rather than selling their shares completely, is that the Legal & General team can (and do) engage with poorly-scoring companies to help them improve. An increased investment in exchange for improvement on various factors is a good incentive, so investors' money makes a positive difference.
The fund won't invest in tobacco companies, pure coal producers, makers of controversial weapons (such as cluster munitions, anti-personnel mines and chemical and biological weapons) or persistent violators of the UN Global Compact Principles (a UN pact on human rights, labour, the environment and anti-corruption).
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 back 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 an area they’d like to track, they’ll work with index providers to create one so they can track it, just like they did with Solactive in the case of the Future World ESG Developed Index.
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.
Legal & General's Future World range of funds also incorporates their 'Climate Impact Pledge', focused on speeding up the progress companies are making in addressing climate change and transitioning to a world powered by renewables rather than mainly oil and gas. They have identified the companies that are critical to the shift to a low-carbon economy and pay special attention to their actions, engaging with company managers where necessary.
Cost
The fund has an ongoing annual fund charge of 0.18%. This is more expensive than many other global trackers, but we think it's a reasonable price to pay given the additional ESG analysis that takes place. Our platform charge of up to 0.45% per annum also applies.
Performance
The fund has tracked the Solactive L&G ESG Developed Markets Index well since launch in April 2019, although this is a short period of time. The fund has a relatively short track record, but Legal & General’s team has a longer record managing a range of other tracker funds. Its size, experience and expertise running index tracker funds gives us confidence the fund will track its index tightly and efficiently over the long term, although there are no guarantees. Over the long run, we expect the fund's performance to fall behind the index, as with any tracker fund, because of the costs involved in running the fund such as taxes and dealing charges.
Global stock markets fell in early 2020 in reaction to the global coronavirus pandemic. But since then, successful vaccine rollouts, unprecedented central bank support and a gradual reopening of the world’s economies caused most stock markets to rise, with many surpassing their pre-pandemic highs. Amongst the best performers was the US, which makes up over 60% of the global stock market and, consequently, a similar proportion of this fund. Sector-wise, technology, basic materials and industrials delivered the strongest returns.
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| May 16 -
May 17 |
May 17 -
May 18 |
May 18 -
May 19 |
May 19 -
May 20 |
May 20 -
May 21 |
|
| Legal & General Future World ESG Developed Index | N/A* | N/A* | N/A* | 12.1% | 23.5% |
| Solactive L&G ESG Developed Markets Index | N/A* | N/A* | N/A* | 12.2% | 23.1% |
Past performance is not a guide to the future. Source: Lipper IM to 31/05/2021.
*Performance data not available prior to launch in April 2019.
More on Legal & General Future World ESG Developed Index, including charges
Legal & General Future World ESG Developed Index Key Investor Information