Legal & General UK 100 Index Trust: March 2023

• 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’s largest companies
• The fund is a simple, low-cost way to track the FTSE 100 index
• This fund 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 UK 100 Index invests in the 100 largest companies in the UK stock market. While the FTSE 100 is a UK index, many of the companies listed on it also earn money overseas. That means investors will be indirectly investing in foreign economies as well as the UK.

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 global portfolio or diversify a portfolio focused on smaller companies or bonds.

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 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, Jason Forster is responsible for UK fund management and is the primary manager for this fund. He previously worked on the firm’s index fund management systems before becoming a fund manager in 2002. Michael Porte is the secondary manager. He joined LGIM in 2015 from Deutsche Bank Asset & Wealth Management where he held the title of ETF fund manager.

Process

The fund aims to invest in every company in the index and in the same proportion. This is known as full replication and helps to closely match the performance of the index over time. The fund is heavily weighted to the financials, consumer staples and energy sectors with the top 10 companies making up 49% of the fund. This is determined by the underlying index the fund is tracking.

Factors like withholding 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 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 like Solactive in the case of the Future World ESG UK Index, 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.

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 UK 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 tobacco or weapons.

Cost

The fund has an annual ongoing 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 FTSE 100 tracker funds. Our platform charge of up to 0.45% per annum also applies.

Performance

The Legal & General UK 100 Index Fund aims to track the FTSE 100 index. Since launch its returned 174.59% versus 184.51%* 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 as close to the index as possible.

The FTSE 100 index currently has large exposures to sectors such as energy, health care and financial services. Therefore, these sectors could currently have the biggest impact on the market’s performance, though the makeup of any index can change over time.

Over the last year to the end of February 2023, the fund has returned 10.74% compared with the FTSE 100 index return of 9.60%. UK Oil & gas companies in particular have performed well over the year. This is partly down to the ongoing effects of the Ukraine crisis which has led to a surge in global oil & gas prices and inflation.

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. The fund appears to have outperformed the index, though this can be down to discrepancies in the performance data where the fund and index are valued at different points throughout the day.

Past performance is not a guide to the future. Source: *Lipper IM, to 28 February 2023.

Find out more on Legal & General UK 100 Index, including charges

Legal & General UK 100 Index Key Investor Information