Asset Manager Overview
Legal & General Investment Management (LGIM) is the investment management arm of the Legal & General Group, a FTSE 100 company established in 1836. Globally, they employ over 10,000 people. Within the UK, they are known for their index and LDI capabilities, but they also manage real assets, multi-asset, and active funds.
Fund Manager/Team Overview
LGIM has been managing index strategies for over 30 years, with the majority of assets in equity funds. The equity and fixed income funds at LGIM are managed by two separate teams, each with expertise in their respective asset classes. The fixed income team in EMEA is headed by Lee Collins, and he and his team receive support from the separate ETF team at LGIM, who manage similar funds but within an ETF structure.
Investment Philosophy & Process Overview
The fund invests in physical securities and follows a "pragmatic replication" approach. This means that the managers will aim to fully replicate the index by holding all its constituents in line with their index weights but may deviate temporarily from these constituents and/or weightings if they believe it to be in the investors' best interests. This would usually be because there is poor or no liquidity in the stocks that the fund needs to trade. In such cases, the managers will temporarily use a sampling approach that replicates the risk factors of the index without holding the exact positions. They will maintain this approach until liquidity improves to the extent that they can build up the correct weightings in the stocks.
The weightings of all fund holdings are allowed to fluctuate within a narrow band without automatic rebalancing to avoid unnecessary trading costs for the fund.
The fund is priced and traded at 12:00pm. If the underlying market is closed, a fair pricing adjustment may be applied to align the fund with the expected price of the tracked index. Most of the time, fair value adjustments have no material impact on the fund's pricing operations. However, occasionally, when a market is closed, an event may occur that would materially impact prices. This was the case in February 2022 when Russia's invasion of Ukraine led to the suspension of all Russian stocks to international investors. Therefore, a fair price adjustment was applied by valuing all Russian securities at zero.
The fund is priced at a different time than the benchmark, which can slightly increase the tracking error and lead to notable differences in performance if there are market moves between when the fund and the benchmark are priced. This difference should then be eradicated the following day.
This fund operates with a single swing pricing policy, which means that units are typically bought and sold at the same price. However, the price can swing up or down if the daily inflow or outflow exceeds a certain threshold. This involves the price swinging up in the case of heavy inflows or swinging down in the case of heavy outflows, ensuring that incoming or exiting investors bear these costs rather than the current investors. This mechanism is sometimes referred to as an anti-dilution levy and is intended to prevent arbitrage investing. We consider this policy to be reasonable, as it protects the interests of those who continue to hold the fund.
The fund does not undertake any stock lending activity.
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