Legal & General launches core equity ETFs

Nov 13th, 2018 | By | Category: Equities

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Legal & General Investment Management (LGIM) has unveiled a range of core low-cost equity ETFs on the London Stock Exchange.

Simon Hynes, Head of Retail Distribution, EMEA, at LGIM

Simon Hynes, Head of Retail Distribution, EMEA, at LGIM.

The ETFs include Global, US, Europe, UK, Japan and Asia Pacific equity exposures and are the firm’s first new ETFs since its acquisition of ETF Securities’ Canvas platform in March this year.

The ETFs are referenced to indices from Solactive that are designed to help shield investors from unpredictable behaviour of crowded trading that is sometimes experienced by equity indices commonly tracked by core ETFs.

LGIM notes that the vast majority of index-tracking assets have turnover that is concentrated on just a handful of major trading days each year – when the major indices (such as the S&P 500 or MSCI EAFE) rebalance

By tracking non-mainstream indices, the ETFs will not be forced to rebalance at the same time as the vast majority of core equity ETFs in the market where short-term price volatility frequently occurs.

LGIM argues that the risk from this volatility is increasing as more assets flow into index funds, pointing to the need for an alternative approach.

Despite tracking less well-known indices, however, the ETFs share similar composition characteristics and risk attributes with their more familiar peers, with considerable overlap in holdings and, in some cases, near-identical weightings.

The indices track the large and mid-cap segments of their respective target markets, representing approximately 85% of the free-float market capitalization. LGIM reports that in back-tests the indices exhibit a 99.9% historical correlation with comparable indices from a major index provider.

In addition to rebalancing to a different timetable, the indices also incorporate a consideration of environmental, social and governance factors, screening out manufacturers of controversial weapons, pure coal companies, consistent violators of the UN Global Compact, and companies on LGIM’s Future World Protection List.

Going further than plain vanilla passives – ‘core plus’, if you like – the ETFs are a useful addition to the product landscape and will likely find use within portfolios as strategic building blocks, tactical adjustment tools, and general portfolio diversifiers.

Commenting on the launch, Howie Li, Head of ETFs at LGIM, said: “It’s right to expect more than just low-cost from core equity ETFs. Index managers need to be more active in mitigating the risks of crowded indices and engaging with companies for the long-term benefit of the market and investors. We have designed our range of core ETFs with these principles in mind, taking steps to promote long-term performance and stability.”

Simon Hynes, Head of Retail Distribution, EMEA, at LGIM, added: “Our core equity ETFs can be used on their own or in conjunction with investors’ existing building blocks to help diversify issuer concentration risk. We believe our core range will be of interest to our clients due to the low cost and additional value they deliver compared to what’s currently available in the market.”

Timo Pfeiffer, Head of Research at Solactive, commented: “We feel quite honoured to be chosen as the initial index provider for LGIM’s first big own ETF launch. The combination of this momentous event with our own major release of our new index family makes it even more exciting since we can proudly say that our recently established Global Benchmark Series resonates within the industry.”

The ETFs come with annual ongoing charges of just 0.05% for the US and UK funds and 0.10% for the Global, Europe, Japan and Asia Pacific funds.

L&G UK Equity UCITS ETF (LGUK)
L&G Europe ex UK Equity UCITS ETF (LGEG)
L&G US Equity UCITS ETF (LGUG)
L&G Global Equity UCITS ETF (LGGG)
L&G Japan Equity UCITS ETF (LGJP)
L&G Asia Pacific ex Japan Equity UCITS ETF (LGAG)

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