Legal & General has established a global tracker fund for investors who want to achieve greater diversification at a relatively low cost.
The global index trust is a unit trust which tracks the Standard & Poor's global 100 index. This index comprises 100 of the largest global companies, including Reuters Group, Sony Corporation and Volkswagen AG.
Legal & General introduced the fund because its market research showed that some investors felt constrained by investing in a single country or sector. Legal & General says that investors in the global index trust get greater diversity with lower costs than actively managed global funds.
With an annual management charge of 1 per cent, the L&G fund is at the more expensive end of the tracker fund market, but this is because it holds all 100 stocks on the index. Some tracker funds replicate the returns of their chosen index by sampling, which is where the fund mimics an index by holding the main stocks on the index. Funds that use sampling are cheaper because fewer stocks reduces the dealing costs they incur.
This fund may suit investors who are looking to add a passive fund to a portfolio of actively managed funds. It could also suit investors who are looking for a core fund which is globally diverse. Tracker funds are generally regarded as lower risk than actively managed funds but they may be riskier when markets are falling. Unlike actively managed funds, there is no possibility of outperforming the index and this could limit its appeal to some investors.