- Legal & General is one of the UK’s leading providers of passive funds
- An excellent option for investing in a broad range of domestic UK companies
- A low cost way to invest in the FTSE 250 (excluding investment trusts) index
- This fund has been added to the Wealth Shortlist of funds chosen by our analysts for their long-term potential
How it fits in a portfolio
This fund invests in all the stocks from the FTSE 250 index of medium-sized UK companies, except investment trusts. As a passive fund, it’s a simple and low-cost option. It could be useful for those wanting exposure to smaller, more domestically-focused UK businesses with more room for growth than those from the FTSE 100. By excluding investment trusts from the portfolio, it also offers a purer exposure to UK businesses than a broader FTSE 250 index tracker.
Manager
Legal & General have been running index tracker funds longer than most. They’re also one of the largest providers of passive funds and have the biggest index team in the UK. That means they’ve got the resources and expertise to track indices as closely as possible, and the scale to keep charges to a minimum. We think they’re one of the best providers of index trackers around.
Process
The fund aims to copy the FTSE 250 (excluding investment trusts) index, which is made up of medium-to-small-sized businesses. It does this by investing in all the stocks of the index and in the same proportion. These smaller companies have more potential for growth than the larger, more international businesses of the FTSE 100, but they’re also higher risk.
There are over 60 investment trusts in the FTSE 250 index, so by excluding them from the portfolio, the fund has just under 190 holdings. It also removes a lot of the index’s international exposure, as many of the investment trusts invest outside the UK. Having said that, FTSE 250 businesses make around half their sales overseas, so there’s still a fair amount of indirect international exposure.
The fund currently invests most in the financial, industrial and consumer services sectors. There’s a wide spread of investments – the top 10 make up less than 15% of the fund and no single holding is more than 2% of the portfolio. The FTSE 100’s top ten largest stocks, by comparison, make up nearly half the index and the largest position is over 7%.
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 Legal & General team can lend stocks in return for a fee, and can use derivatives, which can also add risk.
Culture
Legal & General has become synonymous with passive funds. They’ve got around £400bn invested in this part of their business, allowing them to offer a wide range of index-tracking options. They’ve 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.
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
The fund is available for an annual ongoing charge of 0.14%. We think this is good value for a FTSE 250 index tracker run by a provider we rate highly. Our platform charge of up to 0.45% per annum also applies.
Performance
The fund has tracked the FTSE 250 ex investment trusts index very closely since it launched in January 2017*. As with virtually all index tracker funds, it’s fallen behind the benchmark because of the costs involved, but not by much due to the good job the Legal & General team has done. Given Legal & General’s size, experience and expertise running index tracker funds, we’d expect this to continue, although there are no guarantees and past performance is not a guide to the future.
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| May 15 -
May 16 |
May 16 -
May 17 |
May 17 -
May 18 |
May 18 -
May 19 |
May 19 -
May 20 |
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| Legal & General UK Mid Cap Index | N/A | N/A | 7.2% | -8.9% | -10.8% |
| FTSE 250 (ex investment trusts) | -2.9% | 17.9% | 7.7% | -8.6% | -10.5% |
Past performance is not a guide to the future. Full year past performance prior to 31/05/2017 is unavailable. Source: Lipper IM to *31/05/2020
More on Legal & General UK Mid Cap Index, including charges
Legal & General UK Mid Cap Index Key Investor Information
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