Legal & General Future Wrld ESG Tilted & Opt Dev I Class C - Income (GBP)

The fund's tracked its index well since launch in April 2019. Over the long run, we'd expect the fund's performance to fall behind the index due to the costs involved. This is typical of all tracker funds. The tools used by the managers have helped to keep performance close to the index and reduced the tracking difference.

If we compare the fund’s performance against the broader global stock market, the fund’s exclusion list and tilting mechanism could cause performance to be different.

The fund has a relatively short track record, but Legal & General’s team has a longer one managing a range of other tracker funds. Due to their 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.

Legal & General has become synonymous with passive funds and is one of the largest providers of index funds in the UK. It has around £482bn invested in this part of the business, allowing it to offer a wide range of index-tracking options. It has also built a team of experienced index tracker fund specialists.

We admire Legal & General's commitment to encouraging good corporate practices among the companies it invests in. It proactively engages with businesses and uses proxy voting rights to highlight important matters like environmental, social and governance (ESG) issues.

Legal & General's Future World range of funds incorporates its ‘Climate Impact Pledge’, which is its commitment to assess and engage with around 1,000 of the world’s largest companies on how well they manage the implications of climate change. Companies that consistently show a lack of awareness of climate change, and do not respond positively to engagement, are sold from the Future World funds.

This fund aims to track the performance of the Solactive Legal & General Enhanced ESG Developed Markets Index. It's made up of around 1,400 companies across developed markets, like the US, Japan and the UK, and diversified across lots of sectors. The team would preferably invest in every company in the index and in the same proportion. However, this is not always possible because it's difficult to buy and sell the smallest companies quickly or at low cost, which could ultimately impact performance. This is known as partial replication.

The fund does still invest in some smaller companies, which are usually subject to more extreme price movements, and this can increase risk.

The fund won't invest in direct violators of the UN Global Compact Principles (a UN pact on human rights, labour, the environment and anti-corruption) and companies that earn more than 10% of their revenues from tobacco. It also excludes companies that are involved in controversial weapons (such as cluster munitions, anti-personnel mines and chemical and biological weapons) and those that derive a significant amount of revenue from military and assault weapons.

The fund's exclusions include companies that earn more than 20% of their revenues from the mining and power generation of thermal coal and those involved in its expansion. It also excludes companies that derive more than 5% of their revenue from oil sands.

The index increases investments in companies that score well on a variety of ESG criteria - from the level of carbon emissions generated, to the number of women on the board and the quality of disclosure on executive pay. It also reduces exposure to companies that score poorly on these measures.

The advantage of reducing investments in poorly-scoring companies, rather than selling their shares completely, is that the Legal & General team can engage with poorly-scoring companies to help them improve. An increased investment in exchange for improvement on various factors is a good incentive, so investors' money could make a positive difference.

The fund also adopts a decarbonisation pathway. This means it aims to reduce emissions by 50% relative to the unadjusted benchmark as at 2021 and thereafter achieve at least a 7% reduction in carbon emissions per year until 2050. The goal is to align the fund with the Paris Agreement, which aims to limit the temperature rise caused by global emissions to 1.5 degrees celsius above pre-industrial times. We think this is a positive step overall, but it increases the fund's complexity.