Legal & General Global Technology Index Trust: December 2024 fund update

• Legal & General is one of the UK’s leading providers of passive funds

• This fund gives investors access to the largest technology companies in the world

• It’s a simple and low-cost way to track the FTSE World Technology Index

• This fund does not currently feature on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The Legal & General Global Technology Index Trust invests in technology companies from all around the world, with a focus towards the US.

An index tracker fund is one of the simplest ways to invest, and this fund could be a low-cost way to gain exposure to the rapidly growing technology sector. Given its bias towards the US, it could also help diversify an investment portfolio that’s focused on other regions like Asia and Europe. Funds that invest in specific or specialist sectors carry more risk so a fund like this should only form a small part of a well-diversified investment portfolio.

Manager

Legal & General has run index tracker funds for over 30 years and is one of the largest providers of index funds 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.

Each 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, Tasos Kontos is the primary manager of this fund. Kontos manages a number of international equity index funds that focus on alternative methods of investing. Prior to joining Legal & General in 2010, he spent more than five years as Head of Index Design at the FTSE Group. The secondary manager for this fund is Tom Hammond who’s been on the index team for nearly two decades. Hammond joined Legal & General in 2000 and worked his way up to become a fund manager.

Process

The fund aims to track the performance of the FTSE World Technology Index. It does this by investing in every company in the index and in the same proportion. This is known as full replication and helps the fund closely match the performance of the benchmark.

There are currently 256 companies in the index, although it’s concentrated in its top ten companies which make up around 70% of the fund. Apple, Nvidia and Microsoft are the largest, at 15.9%, 14.9% and 14.5% respectively.

86% of the fund is invested in the US, with the rest spread across Japan, Europe and some higher-risk emerging markets like Taiwan and Korea. This is determined by the underlying index the fund is tracking.

In any index tracker fund, factors like withholding taxes, dealing commissions and spreads, and the cost of running the fund all drag on performance. The team try to keep turnover in the portfolio, the frequency at which shares are bought and sold, as low as possible to reduce some of these costs.

Legal & General cross trades shares internally across all its own funds when there’s an index rebalance. Trading efficiently like this helps to minimise costs and reduce the tracking difference between the fund and the index.

Legal & General is a conservative tracker fund manager. For example, it doesn’t lend the investments in its index funds like some other companies do.

Culture

Legal & General has developed its passive fund range over the last three decades. The company manages around £500bn in tracker funds, allowing it to offer a wide range of index-tracking options.

Legal & General has built a team of experienced passive fund specialists and is innovative too. If an index doesn’t exist for a sector the team would like to track, they’ll often work with index providers to create one so they can track it.

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

Employees are also encouraged to participate in Legal & General’s sharesave scheme which should encourage them to be more engaged with the growth of the company. In addition, a portion of fund managers’ bonuses are invested into the funds they manage. By doing this, their interests are further aligned with the investors in the fund.

ESG Integration

Legal & General Investment Management (LGIM) is predominantly a passive investor, but we are impressed with the extent to which they’ve woven Environmental, Social and Governance (ESG) matters into their culture. Being a mostly passive fund house hasn’t stopped them being innovative when it comes to ESG. In May 2019, the firm launched its ‘Future World’ range of funds, though the Global Technology Index Trust isn’t a part of this range.

These funds track indices that increase 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. They also reduce exposure to companies that score poorly on these measures. The funds also adopt a decarbonisation pathway. This means they’re managed to achieve at least a 7% reduction in carbon emissions per year until 2050.

In 2019, LGIM established its Global Research and Engagement Platform, which brings together representatives from the investment and stewardship teams, in order to unify their engagement efforts. Engagement is conducted in line with the firm’s comprehensive engagement policy. A detailed description of the firm’s engagement and voting activity (including case studies) is available in its annual Active Ownership report. Quarterly Engagement reports are also available.

LGIM’s Stewardship team is responsible for exercising voting rights globally, both for LGIM’s active and index funds. Voting decisions are publicly available through a tool which allows a user to search for any company to find out how LGIM voted, and a detailed rationale is provided for votes against management and abstentions.

The Legal & General Global Technology Index Trust doesn’t specifically track a benchmark that considers ESG factors or excludes companies in industries such as tobacco or oil and gas.

Cost

The fund has an annual ongoing annual fund charge of 0.32%, but a discount of 0.12% is available for HL investors, which reduces the charge to 0.20%. Our platform charge of up to 0.45% per annum also applies, except in the Junior ISA, where no platform charge applies.

Performance

The technology sector has delivered significant returns over the last 10 years, and the fund has gained 584.16%* during this time. As expected from an index tracker fund, it’s fallen behind the benchmark over the long term because of the costs involved in running the fund. However, the tools used by the managers have helped to keep performance tight to the index.

The share prices of technology companies have rallied in recent years. In the last five years, the fund and its benchmark, the FTSE World Technology Index, have risen by 184.70% and 191.59% respectively. But remember, past performance isn’t a guide to future returns.

The technology sector has continued to perform well over the past year due to strong earnings growth from companies involved in the development of Artificial Intelligence (AI) as AI has remained a key theme in 2024. Nvidia, the world’s most valuable computer chipmaker, has seen its shares continue to rise this year driven by huge demand for its products that power AI applications.

Growth companies, like those in the technology sector, tend to be sensitive to interest rate rises so falling inflation and interest rate cuts have helped these companies over the last 12 months. During this period, the fund returned 36.91% compared to 38.18% for the index.

Note that while the technology sector has performed well in recent years, this won’t be the case every year as different sectors will come in and out of favour. That’s why we believe it’s important for long-term investors to maintain diversified portfolios across different sectors and styles of investing.

The FTSE World Technology Index is priced when the market closes whereas the fund is priced earlier in the day. The movement in share prices in this period in between can artificially increase the tracking difference between the fund and the index.

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.