Classic beta: Simple can still be smartLEGAL & GENERAL INVESTMENTSClassic beta: Simple can still be smartThis is not a con...
Classic beta: Simple can still be smart                                                                                   ...
Classic beta: Simple can still be smart                                                                               3  I...
Classic beta: Simple can still be smart                                                                                   ...
Classic beta: Simple can still be smart                                                                                   ...
Classic beta: Simple can still be smart    6The role of passives from a client’sperspective? • Active or passive? An age o...
Classic beta: Simple can still be smart                  7General methods of indexation•     Full Replication•     Samplin...
Classic beta: Simple can still be smart                                       8LGIM index methodologyClose index tracking•...
Classic beta: Simple can still be smart                   9Trading strategyIndex change implementation•     Responsible ma...
Classic beta: Simple can still be smart                                                                                   ...
Classic beta: Simple can still be smart                                                            11 Legal & General’s in...
Classic beta: Simple can still be smart                                      12Identifying new opportunities:Global Megatr...
Classic beta: Simple can still be smart                   13Capturing the global megatrendsThree megatrend investment them...
Classic beta: Simple can still be smart                                                     14An unprecedented opportunity...
Classic beta: Simple can still be smart                                15Summary•     Proven track record as responsible a...
Classic beta: Simple can still be smart   16Appendix
Classic beta: Simple can still be smart                                                                                   ...
Classic beta: Simple can still be smart                   18LGIM index equity management     Experience – 13 people coveri...
Classic beta: Simple can still be smart                                                                                   ...
Classic beta: Simple can still be smart                                                                                   ...
Classic beta: Simple can still be smart          21LGIM Index Bond ManagementExperience – 9 people covering global bondsAv...
Classic beta: Simple can still be smart                                                                                   ...
Classic beta: Simple can still be smart                                                                                   ...
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Smart beta retreat lgi 2012

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Smart beta retreat lgi 2012

  1. 1. Classic beta: Simple can still be smartLEGAL & GENERAL INVESTMENTSClassic beta: Simple can still be smartThis is not a consumer advertisement. It is intended for professional financial advisers and should not be reliedupon by private investors or any other persons.
  2. 2. Classic beta: Simple can still be smart 2Passive fund provision in the UK Passive AUM by IMA Sector (£m) UK All Com panies North America UK Index Linked Gilts Europe Excluding UK UK Gilt Global Global Bonds Asia Pacific Ex Japan £ Corporate Bond Japan Global Emerging Mkts UK Equity Income 0 5000 10000 15000 20000 25000 30000 AUM (£m ) Source: Lipper FMI as at end September 2012 A supply side failing? More an opportunity!
  3. 3. Classic beta: Simple can still be smart 3 Index funds business overview Total UK pension funds under management † 280 Legal & General Investment Management 240 • Total assets under management - £381 billion* 200 • Total index assets - £237 billion* • UK pooled index fund market leaders 160 £bn • More S&P platinum ratings than any other UK 120 index fund provider. 80 • No conflicts of interest (No affiliates involved in broking, banking or custody activities) 40 0 LGIM BlackRock Insight M&G Standard State Life Street* LGIM internal data as at 30 June 2012.† Source: Hymans Robertson Market Briefing - as at 31 December 2011
  4. 4. Classic beta: Simple can still be smart 4 Growth of index funds at LGIM Pension and Non Pension Funds as at 30 June 2012 in £ in billions 240 230 237 230 Pension Non Pension 220 214 31 208 29 29 • Shift from active to 200 25 27 176 180 162 21 passive 160 • Largest provider of 23 138 140 17£bn 120 111 pooled index funds 100 92 14 189 181 201 201 207 to UK pension 78 80 68 75 13 77 12 14 155 schemes 13 139 10 • Over 20 years’ 60 120 45 97 40 31 8 78 13 16 21 7 57 62 65 65 experience in 20 12 6 36 3 9 3 10 5 11 16 24 managing index 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 funds Q2 180 280 401 591 835 1,121 1,448 1,715 1,909 2,126 2,339 2,490 2,687 2,730 2,838 2,868 2,993 2,950 2,885 2,830 Number of Index Pension Fund Clients LGIM internal AUM data as at 30 June 2012. May not total due to rounding.
  5. 5. Classic beta: Simple can still be smart 5 Index funds Breakdown of assets under management Multi Asset £ 0.3 Pacific ex Japan Equities £ 8 Cash £ 2 Overseas bonds £ 7 Emerging Markets Equities • Total index assets - £237 £9 Japan Equties £ 10 billion* UK Equities £ 70 Europe ex UK Equities £ 25 • £207 billion index corporate pension assets* • 66% equities, 34% bonds North American Equities £ 34 UK Index-Linked Bonds £ 36 UK Fixed Interest £ 36In £bn Source: LGIM internal data as at 30 June 2012.
  6. 6. Classic beta: Simple can still be smart 6The role of passives from a client’sperspective? • Active or passive? An age old debate. • Is using passive already seen as ‘innovation’? • The ‘News at 10 effect’. • Tactical vs. strategic • Education gap to be filled first
  7. 7. Classic beta: Simple can still be smart 7General methods of indexation• Full Replication• Sampling – Optimisation – Stratified Sampling• Synthetic Replication• The Legal & General approach: Pragmatic Replication:
  8. 8. Classic beta: Simple can still be smart 8LGIM index methodologyClose index tracking• Pragmatic replication• Portfolio operating parameters coded into bespoke fund management systems – Control tolerances – country, sector and securities – Futures/liquidity guidelinesMaximising returns:• Implementation of index changes• Corporate actions• Dividend enhancementIncome/cash flow management• Low-cost rebalancing opportunity• Use of listed futures for efficient portfolio management
  9. 9. Classic beta: Simple can still be smart 9Trading strategyIndex change implementation• Responsible management of index changes• Phasing strategy based on consideration of – cash flows – risk parameters – tracking error/duration profile – security liquidity – transaction costs• High index entry prices lowers subsequent fund return• Low cost objective – including market impact• All within strict risk parameters
  10. 10. Classic beta: Simple can still be smart 10FTSE Index Change – Pacific Index TrustAIA Group (Hong Kong): Investibility Weight Change - March 2012 29.5 Index Effective Date 16 Mar 12 29.0 Secondary Share Placing 6 Mar 12 28.5 28.0Price (HKD) 27.5 Average traded Price = HKD 27.95 27.0 Benchmark Price = HKD 28.40 Secondary Placing Price = HKD 27.15 26.5 0.0043% added to Pacific ex Japan Index Trust 26.0 06/03/12 06/03/12 07/03/12 08/03/12 09/03/12 09/03/12 12/03/12 13/03/12 14/03/12 14/03/12 15/03/12 16/03/12 19/03/12 20/03/12 20/03/12 AIA Group Price Trade Av. PriceSource: Bloomberg / LGIM
  11. 11. Classic beta: Simple can still be smart 11 Legal & General’s index funds A straightforward proposition VALUE EXPERTISE SIMPLICITY Over 20 years’ experience of close index tracking0.20% AMC for single country We invest directly in physical and regional funds Individually tailored trading stocks wherever possible strategies provide0.30% AMC for global funds opportunities to add value We do not have a stock lending programme More S&P Platinum fund ratings than any other UK index fund provider
  12. 12. Classic beta: Simple can still be smart 12Identifying new opportunities:Global Megatrends Urbanisation Depleting Consumption Resources Over-population International regulations to reduce pollutants PRESSURE ON INVESTMENT GLOBAL RESOURCES OPPORTUNITY Increasing global wealth Resource scarcity, Population security and depletion explosion
  13. 13. Classic beta: Simple can still be smart 13Capturing the global megatrendsThree megatrend investment themes: Energy efficiency Flexible diversified Capturing global Low carbon energy megatrend exposure that beta focuses on ‘pure play’ Water, waste companies and pollution control
  14. 14. Classic beta: Simple can still be smart 14An unprecedented opportunityFinding new ways of tracking growth • Large companies Market cap. • US dominated  Skewed risk method • Overweight in solar and energy efficiency Osmosis • Specialist asset manager and independent index provider Investment • Deep understanding of environmental factors and how they Management impact investment portfolios The Osmosis Environmental Enterprises Index
  15. 15. Classic beta: Simple can still be smart 15Summary• Proven track record as responsible and trusted index fund provider• Firm commitment to index funds business• Twin track approach: Close index tracking and maximising returns• Providing access to key asset classes at the right price• Straightforward high quality beta products• Translating long term investment themes into investable products
  16. 16. Classic beta: Simple can still be smart 16Appendix
  17. 17. Classic beta: Simple can still be smart 17Fund Name Charges (%)Fund / Unit Class Name AMC OCFLegal & General UK Index Trust I Class (Acc / Inc) 0.20 0.22Legal & General All Stocks Gilt Index Trust (Acc / Inc) 0.20 0.23Legal & General All Stocks Index Linked Gilt Index Trust (Acc / Inc) 0.20 0.23Legal & General Sterling Corporate Bond Index Fund (Acc / Inc) 0.20 0.23Legal & General UK 100 Index I Trust I Class (Acc / Inc) 0.20 0.25Legal & General US Index Trust I Class (Acc / Inc) 0.20 0.23Legal & General Japan Index Trust I Class (Acc / Inc) 0.20 0.24Legal & General European Index Trust I Class (Acc / Inc) 0.20 0.25Legal & General Pacific Index Trust I Class (Acc / Inc) 0.20 0.27Legal & General Global 100 Index Trust I Class (Acc / Inc) 0.30 0.31Legal & General Global Health & Pharmaceuticals Index Trust I Class (Acc / Inc) 0.30 0.31Legal & General Global Technology Index Trust I Class (Acc) 0.30 0.31Legal & General International Index Trust I Class (Acc / Inc) 0.30 0.38Legal & General Global Emerging Markets Index Fund I Class (Acc / Inc) 0.30 0.57*NEW* Legal & General Global Emerging Markets Government Bond (US$) Index I (Acc/Inc)** 0.30 Estimated 0.36**Subject to FSA approval
  18. 18. Classic beta: Simple can still be smart 18LGIM index equity management Experience – 13 people covering global equities Average industry experience of 11 years Operating systems In-house fund management system (IFOS) Strong risk framework covers: Multi-dimension risk monitoring approach covering: • Portfolio risk • Operating riskSource: LGIM
  19. 19. Classic beta: Simple can still be smart 19 FTSE Index Change - Global Technology Trust Facebook Inc. (USA): Fast Entry - May 2012 Placing price = USD 38.00 (close 17 May) 42.0 Average Price = USD 32.73 Index Announcement Index Entry Price = USD 33.03 40.0 18 May 0.0046% added to fund value 38.0Price (USD) Effective Date 36.0 25 May 34.0 32.0 30.0 18/05/12 21/05/12 22/05/12 23/05/12 24/05/12 25/05/12 26/05/12 Facebook Price Average Price Source: Bloomberg / LGIM
  20. 20. Classic beta: Simple can still be smart 20 FTSE Index Change – Global Emerging Markets Index Trust Grupo Financiero Santander (Mexico): Fast Entry - October 2012 35.5 35.0 34.5 Effective Date 34.0 2 OctoberPrice (MXN) 33.5 Index Announcement Date 33.0 26 September 32.5 Average Price = MXN 34.86 32.0 Placing price 25 September Index Entry Price = MXN 35.34 31.5 MXN 31.25 0.0018% added to fund value 31.0 21/09/12 27/09/12 26/09/12 27/09/12 28/09/12 01/10/12 02/10/12 02/10/12 03/10/12 04/10/12 05/10/12 05/10/12 Grupo Financiero Santander Trade Av. Price Source: Bloomberg / LGIM
  21. 21. Classic beta: Simple can still be smart 21LGIM Index Bond ManagementExperience – 9 people covering global bondsAverage industry experience of 13 yearsOperating systemsIn-house fund management system (BFOS)Strong risk framework covers:Multi-dimension risk monitoring approach covering:• Portfolio risk• Operating riskSource: LGIM
  22. 22. Classic beta: Simple can still be smart 22iBoxx Index Change – AAA-AA-A All Stocks Index FundBHP Billiton Finance Ltd 3.25% 25/09/24 : Index Addition - October 2012 Index Effective Date 1 October 100.4 100.2 100.0 99.8 99.6 99.4 99.2 Average Trading Price = 99.94 Index Entry Price = 100.18 99.0 Issue Announcement Date 0.001% added to fund value 98.8 19 September 98.6 19/09/12 20/09/12 21/09/12 24/09/12 25/09/12 26/09/12 27/09/12 28/09/12 01/10/12 02/10/12 BHP Billiton Fin Trade Average PriceSource: Bloomberg / LGIM
  23. 23. Classic beta: Simple can still be smart 23DisclaimerImportant InformationIssued by Legal & General (Unit Trust Managers) Limited, authorised and regulated by the Financial Services Authority. This document shouldnot be taken as an invitation to deal in Legal & General investments or the stated investments.The views expressed within this document are those of Legal & General (Unit Trust Managers) Limited, who may or may not have acted uponthem. Legal & General (Unit Trust Managers) Limited is the Investment Manager of the stated funds.Investments of this type and any income from them may rise and fall in value. Investors may get back less than they invest. Some of the statedfunds invest in companies in specialist areas. In addition, some of these investments will be in smaller companies or companies from emergingmarkets. This means that these funds are higher risk than other more general equity funds. Exchange rate changes may cause the value of anyoverseas investments to rise or fall. Details of the specific and general risks associated with these funds are contained within the Key InvestorInformation documents.Past performance is not a guide to future performance.Call our Broker Desk 080000000 Lines are open Monday to Friday, 9am to 5pm. Call charges will vary. We may record and monitor calls.Legal & General (Unit Trust Managers) Limited. Registered in England number: 1009418.Registered office: One Coleman Street, London EC2R 5AA.
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