Legal & General US Index: April 2022 fund update

How it fits in a portfolio

The Legal & General US Index offers investors broad exposure to a range of companies and sectors in the US. Given that the fund tracks the US market, it’s more heavily weighted in large technology companies such as Apple, Microsoft and Amazon.

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 exposure to the US. It could be used to provide diversification to an investment portfolio already focused on Europe and Emerging Markets.

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, Tunde Oladimeji is the primary manager responsible for a range of index funds. Tunde joined Legal & General in 2018 after previously working at Vanguard where he spent six years as a Portfolio Manager & Trader on the Equity Index Team. 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 companies, as measured by the FTSE USA Index. It's currently made up of around 615 companies, focused on sectors such as technology, consumer discretionary and health care. While the fund diversifies across the US, it’s still heavily weighted in technology companies which make up 30.4% 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 USA Index and in the same proportion. This is known as full replication and helps to closely match the performance of the index. 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 over £470bn invested in this part of the business, allowing it 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 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.

The team running this fund works closely with various risk departments across the business. We believe this provides support and adds challenge where appropriate.

Cost

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

Performance

The Legal & General US Index Fund aims to track the FTSE USA and has done a good job since launch in 1992. 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 USA Index has done particularly well in the last 10 years returning around 364%*. This performance is partially down to the inclusion of technology companies in the index whose stock prices have seen a rally in recent years. Over the same timeframe, the Legal & General US index has returned 336% to investors. Remember, past performance isn’t a guide to future returns.

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.

Past performance is not a guide to the future. Source: *Lipper IM to 28/02/2022.

More on Legal & General US Index, including charges

Legal & General US index key investor information