Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.
- 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 global markets
- A low-cost and simple way to track the FTSE World ex UK 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 International Index Trust offers investors broad exposure to global markets and sectors while excluding the UK. This includes a range of companies in both developed and advanced emerging markets, although these can still be higher risk.
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 be used to provide international diversification to a portfolio already focused on the UK.
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 closely, 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 Jason Forster, who heads up the team responsible for the fund management of the UK. He was formerly responsible for the development of the in-house index fund management system before becoming a fund manager in 2002.
Process
This fund tracks the performance of a basket of global markets, as measured by the FTSE World ex UK Index. It’s currently made up of around 2200 companies versus the index’s 2500, focused on sectors such as Technology, Financials and Consumer Discretionary. While the fund diversifies across global markets, it’s still heavily weighted in US companies which make up approximately 65% of the portfolio. This is determined by the underlying index the fund is tracking.
The fund would preferably invest in every company in the FTSE World ex UK Index and in the same proportion. However, this is not always possible because it’s difficult to buy and sell the smallest companies quickly or at low cost, and this could ultimately impact performance. This is known as partial replication and helps to closely match the performance of the index.
To keep the fund in line with the index the team try to keep costs down by keeping trading to a minimum. For example, they efficiently manage cash flows into the fund, and make large stock purchases in bulk, instead of lots of small transactions.
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 last 30 years. It has just over £470bn 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 to create one so they can track it.
The team running this fund work closely with various risk departments across the business. We believe this provides support and adds challenge where appropriate.
Employees are also encouraged to participate in Legal & General’s Sharesave scheme which should encourage them to be more engaged with the growth of the company. In addition, a portion of portfolio managers’ bonuses are invested into the funds they manage. By doing this, their interests are further aligned with the investors in the fund.
ESG Integration
Legal & General Investment Management (LGIM) is predominantly a passive investor, but we are impressed with the extent to which they have woven ESG into their culture. Being a primarily passive fund house hasn’t stopped them being innovative when it comes to ESG.
In 2019, LGIM established its Global Research and Engagement Platform, which brings together representatives from the investment and stewardship teams, in order to unify their engagement efforts.
Engagement is conducted in line with the firm’s comprehensive engagement policy. A detailed description of the firm’s engagement and voting activity (including case studies) is available in their annual Active Ownership report.
The 22-strong stewardship team is responsible for exercising voting rights globally, both for LGIM’s active and index funds. Voting decisions are publicly available through an industry-leading tool which allows a user to search for any company to find out how LGIM voted.
The Legal & General International Index is a passive fund designed to track an index, so it doesn’t integrate ESG analysis or exclude companies deemed to be sin stocks, like those involved in animal testing.
Cost
The fund has an annual ongoing annual fund charge of 0.13%, but a discount of 0.05% is available for HL investors, which reduces the charge to 0.08%. 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 International Index Fund aims to track the FTSE World ex UK index. Since launch it’s returned 320.00% versus 351.28%* for the index. 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 closer to the index.
The FTSE World ex UK Index has done particularly well in the last 10 years returning 203.65%. 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 International Index Fund has returned 188.58% to investors. Past performance is not a guide to the future.
Over the last five years the benchmark’s returned 60.65%. The index saw a strong bounce back after the market falls in March 2020. However, since then the market return has been relatively muted, in part because of the broader global impact of the Russia-Ukraine war, inflation and rising interest rates.
Given Legal & General’s size, experience and expertise running index tracker funds, we expect the fund to continue to track the index closely 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.
| Feb 18 – Feb 19 | Feb 19 – Feb 20 | Feb 20 – Feb 21 | Feb 21 – Feb 22 | Feb 22 – Feb 23 | |
| Legal & General International Index Fund | 2.44% | 6.14% | 23.20% | 13.36% | 2.78% |
| FTSE World ex UK Index | 3.57% | 9.66% | 20.01% | 14.82% | 2.65% |
Past performance is not a guide to the future. Source: Lipper IM, to 28/02/23.
More about the Legal & General International Index Fund including charges
Legal & General International Index Fund Key Investor Information
Important information – Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.
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