Legal & General UK Index: May 2020 fund update

• Legal & General is home to an expert team of index tracker fund managers and analysts
• This fund is one of the cheapest ways to invest in the UK
• We think it could be a great starting point for a long-term growth portfolio

How it fits in a portfolio

This is a low-cost and easy way to invest in hundreds of UK companies of all sizes, with a bias towards larger firms. An index tracker fund is one of the simplest ways to invest, and we think this fund could be a great starting point for a portfolio aiming to deliver long-term growth. It could also be a good addition to a portfolio of other tracker funds.

Manager

Legal & General has been managing tracker funds for more than three decades and is home to the biggest index tracker 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. We think Legal & General is one of the best providers of index trackers around.

Process

This fund aims to track the performance of the FTSE All-Share, a broad index of large, medium-sized and higher-risk smaller UK companies. It's currently made up of 626 companies, focused on sectors like energy, pharmaceuticals, banks and industrial firms. Many of these companies lead the world in their sectors and sell products and services across the globe. This means they're not all reliant on the health of the UK economy.

The fund invests in every company in the FTSE All-Share Index and in the same proportions. This is called full replication and could help the fund track the performance of the index closely. Legal & General is a fairly conservative tracker fund manager and the UK Index fund doesn’t lend investments. They look for other opportunities to reduce costs though, like when they rebalance the fund to match the index, or by reinvesting dividends.

In any index tracker fund, things like withholdings taxes, dealing commissions and spreads, and the cost of running the fund all drag on performance. To try and bring it back more in line with the index, the team can use derivatives. The use of derivatives adds risk.

Culture

Legal & General has become synonymous with passive funds. It has around £400bn invested in this part of the business, allowing them to offer a wide range of index-tracking options. It has also built a team of experienced index tracker fund specialists, and they're prepared to be innovative. 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.

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 issues.

Cost

This fund has an ongoing annual charge of 0.10%, but we've secured HL clients an ongoing saving of 0.06%. This means you pay a net ongoing charge of 0.04%. That makes it one of the lowest-cost UK tracker funds around. The fund discount is partly achieved through a loyalty bonus, which could be subject to tax if held outside of an ISA or SIPP. The HL platform fee of up to 0.45% per year also applies.

Performance

The fund has tracked the FTSE All-Share well since its launch in 1992. It's tracked particularly well over shorter periods, although over the long run it's fallen behind due to the costs involved. That's to be expected from a tracker fund.

Given Legal & General’s size, experience and expertise running index tracker funds, we expect the fund to continue to track the index well in future, though there are no guarantees how it will perform.

A glance at the five-year performance table below shows in some years the fund tracked the index closer than others. On occasion it has even ended up slightly ahead of the index due to the strategies used by the team, although this won't necessarily happen in future and isn’t an aim of the fund.

Past performance is not a guide to the future. Source: Lipper IM to 30/04/2020.

More on Legal & General UK Index, including charges

Legal & General UK Index key Investor Information