Legal & General International Index Trust: January 2022 fund update

• 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 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 an investment portfolio already focused on the UK.

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 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 global markets, as measured by the FTSE World ex UK Index. It's currently made up of around 2500 companies, focused on sectors such as Technology, Consumer Discretionary and Financials. 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 aims to 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 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 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 (ESG) 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 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 Trust fund aims to track the FTSE World ex UK and has done so since launch in 2008. In this time, the fund has returned 343.00% versus 371.26%* 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 dealing charges and spreads. However, the techniques used by the managers have helped to keep performance close to the index and reduced the fund’s tracking difference.

Over the last five years the benchmark has returned an enormous 89.65%. The index saw a strong bounce back after the market fall in March 2020 and since then, it’s returned around 65%. There are no guarantees the index will perform like this in the future and past performance is not a guide to the future.

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 in some years the fund has tracked the index closer than others.

Past performance is not a guide to the future. Source: *Lipper IM to 31/12/2021.

Find out more about Legal & General International Index, including charges

Legal & General International Index Key investor information