Legal & General All Stocks Gilt Index Trust: May 2022

• Legal & General is one of the UK’s leading providers of passive funds
• We think this fund is an excellent option for accessing the UK gilt market
• The fund is a simple, low-cost way to track the FTSE Actuaries UK Conventional Gilts All Stocks Index
• This fund is on the Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How this fund fits in a portfolio

Gilts are debt issued by the UK government. When buying them, you’re effectively lending money to the government. They’re typically viewed as lower risk, because it’s unlikely the government would default on its debts, though it’s not guaranteed. Gilts can also pay an income, but this has tended to be lower than corporate bonds.

The fund invests solely in gilts which provide exposure to the UK government debt market. Though, this may increase the concentration risk of your portfolio as you’re only exposed to one area.

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 a good addition to a more conservative portfolio or to diversify a portfolio focused on shares or corporate bonds.

Manager

Legal & General has been running index tracker funds for over 30 years. It’s also one of the largest providers of tracker funds. 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 fixed income 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, Nelson Nery is the primary manager responsible for this fund. He joined Legal & General in 2017 after working at Pioneer Investments as a Senior Portfolio Construction Analyst. There he managed a range of fixed income funds with a focus on global corporate bond funds. Tim Beaven is the secondary manager. He started his career with Legal & General in 1980 and has over 30 years’ experience covering all aspects of cash, currency and bond fund management.

Process

This fund tracks the performance of the UK gilt market as measured by the FTSE Actuaries UK Conventional Gilts All Stocks Index. It's currently made up of 58 gilts with varying maturities. The fund aims to invest in every gilt in the Index and in the same proportion. This is known as full replication and helps to closely match the performance of the index.

Legal & General will try to reduce trading within the fund as it drives up costs. Higher costs can lead to a bigger tracking difference between the fund and its benchmark – not what they want to happen.

If a new gilt is added to the underlying index, the team may wait until the price is lower before buying it for the fund. This again reduces costs which helps keep it in line with its benchmark. The index now includes green gilts which are debt issued by the UK government to finance projects that have clearly defined environmental benefits. As a result, these green gilts are also included in the fund.

Legal & General is also 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 works 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 share save scheme and a portion of portfolio managers’ bonuses is invested into the funds they manage. This means their interests are aligned within the fund.

ESG Integration

Legal & General is predominantly a passive investor, but we are impressed with the extent to which they have woven ESG into their culture. And being a mostly passive fund house hasn’t stopped them being innovative when it comes to ESG.

In 2019, Legal & General established its Global Research and Engagement Group, 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 is available in their annual Active Ownership report.

The 16-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 Legal & General voted.

As the Legal & General All Stocks Gilt Index Fund tracks an index of gilts, it does not specifically integrate ESG considerations into its investment process.

Cost

The fund has an annual ongoing annual fund charge of 0.15%, but a discount of 0.07% is available for HL investors, which reduces the charge to 0.08%. We believe this is good value when compared with other Gilt tracker funds on the HL platform. Our platform charge of up to 0.45% per annum also applies.

Performance

The Legal & General All Stocks Gilt Index Trust aims to track the FTSE Actuaries UK Conventional Gilts All Stocks Index and has returned 25.72% versus 27.84%* for the index 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 such as dealing charges and spreads. 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 difference.

Despite being lower risk, gilts can be still volatile at times and their prices fluctuate due to wider economic factors like changes in interest rates. As interest rates rise, we would expect the price of gilts to fall and vice versa. A UK gilt fund probably won't achieve spectacular rates of growth but can offer good diversification against other investments such as shares.

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 that in some years the fund has tracked the index closer than others. Please note charges can be taken from capital, which can increase the yield but reduces the potential for capital growth.

Past performance is not a guide to the future. Source: *Lipper IM to 30/04/2022.

More on Legal & General All Stocks Gilt Index, including charges

Legal & General All Stocks Gilt Index Key Investor Information