The investment arm of insurer Legal & General is one of the world’s leading proponents of index fund management – running funds that track a specific stock market index such as the FTSE100 or FTSE All Share.
As its success has grown, L&G Investment Management has become more adventurous and branched out into specialist index investment funds, focusing on specific market themes such as healthcare, technology and ‘clean’ energy.
One such fund that has enjoyed a good year – despite the market disruption caused by Covid – is L&G Ecommerce Logistics. Listed on the UK stock market and other European bourses, its share price has jumped by 38 per cent since the start of the year. Since launch in early 2018, the £200million fund has generated a return of 48 per cent.
Aanand Venkatramanan is head of exchange traded fund investment strategies at L&G’s fund management arm. He says the fund is perfectly positioned to benefit from the global growth in e-commerce – the buying and selling of goods on the internet. A growth, he says, given fresh impetus by the pandemic and the people’s desire to shop online. E-commerce sales as a proportion of all global retail sales is now around 16 per cent, double five years ago, and growth in internet sales will continue – especially in China.
The fund tracks the performance of the Solactive eCommerce Logistics Index that comprises a basket (just over 40) of logistics service providers and technology companies engaged in e-commerce.
The result is a global portfolio with a number of familiar technology stocks such as Amazon, eBay and Ocado.
But it also includes companies less well known but successful in their home markets – such as Vipshop, a Chinese company listed in the United States that runs online discount website VIP.com; Chinese logistics giant Sinotrans; and Japanese shipping company Nippon Yusen.
Venkatramanan says the fund gives access to those companies involved in the whole buying process – from the moment an online purchase is placed to the business fulfilling the order, the manufacturer of the robots that selects the item from the warehouse, or the software provider that allows the sale to be completed.
It’s not a big universe – a maximum of 360 companies – but sufficient for an e-commerce logistics index to be built that the fund can track. An index giving investors global exposure through a broad range of companies, large and small.
‘We’ve all heard of Amazon and Alibaba, but there are lots of other exciting investment opportunities to be found in the e-commerce space,’ says Venkatramanan.
The index that the fund tracks is rebalanced twice a year so all constituent companies are equally weighted. It is at this time that the companies making up the index may also change. The latest reshuffle, conducted last month, saw four new companies join – Taiwanese freight company Dimerco Express; Danish companies NTG Nordic Transport and Maersk; and eBay.
Venkatramanan says the rebalancing results in a lower risk portfolio than most conventional technology funds, where a key holding may account for more than 10 per cent of the portfolio.
But its own marketing literature rates the fund six out of seven in terms of risk and reward – indicating high risk and potentially higher rewards.
The fund absorbs 0.49 per cent of assets every year in charges. It can be held inside a tax-friendly Isa and the stock market identification code is BF0M776.