Legal & General UK 100 Index Trust: June 2022 fund update

• 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
• 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 trust 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 diversify a portfolio with greater exposure to global companies, as well as one 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 as closely as possible, 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. Konstantins Golovnovs is the secondary manager. He joined Legal & General’s graduate scheme in September 2010, completing various rotations across the business and moved into his current role in 2011.

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 focused towards the financials, consumer staples and health care sectors and the top 10 companies make up around 49% of the fund.

In any index tracker fund, 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 FTSE Russell 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 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 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 17-strong stewardship team is responsible for exercising voting rights globally, both for their 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.

The Legal & General UK 100 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 Trust has done a good job of tracking the FTSE 100 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. However, the techniques used by the managers have helped to keep performance as close to the index as possible and reduced the fund’s tracking difference.

The FTSE 100 index currently has large exposures to sectors such as financial services and consumer staples. 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 May 2022, the FTSE 100 has returned 12.40%*, versus the fund’s return of 12.05%. 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.

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. Past performance isn’t a guide to future returns. Investments rise and fall in value, so you could get back less than you invest.

Past performance is not a guide to the future. Source: *Lipper IM to 31/05/2022.

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

Legal & General UK 100 Index Key Investor Information