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L&G expands index range with the launch of S&P 500 Equal Weight Index Fund
Legal & General’s Asset Management Division has today announced the launch of the Legal & General S&P 500 US Equal Weight Index Fund (“the Fund”), offering investors the opportunity to limit the risk of over-concentration to single stocks in the primary US index. The Fund will track the S&P 500 Equal Weight Index.
18 Oct 2024
Targeting investors in UK wholesale markets, the Fund provides clients with equal weight exposure to issuers in the S&P 500. It will seek to mitigate risks among the handful of stocks that have dominated the weighting of the S&P 500 in recent years, through improved diversification.
The rise of the ‘Magnificent seven’ in the S&P 500 index referring to the seven largest companies in the US by market capitalisation, (namely Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) has resulted in concentration being at its highest level in decades with these stocks comprising almost a third of the S&P 5001. Such dominance has come at the expense of diversification, leading some investors to be over-exposed to volatility in the mega-cap tech sector.
Ben Cherrington, Head of UK Wholesale, L&G Asset Management: “Higher funding levels and the potential to target member benefit uplifts via surplus extraction has meant that many schemes are seeking to balance the ongoing need for funding level stability with a desire to invest for growth in a diversified way over the medium to long term. We believe that allocating to US securitised credit could form part of an enhanced liquidity solution, perhaps as a component of a collateral waterfall allocation, supporting an LDI portfolio. It also has the potential to help clients who are looking to target income levels and long-term growth in excess of traditional fixed income assets.”
The Fund will seek to reduce the concentration risk by taking a full replication approach to exposure and improving portfolio diversification. While an underweight to the largest names in the index is a common trait amongst active US equity managers, over the longer term actively managed US equity funds underperformed the S&P Equal Weight over 20 years2.
The ‘Magnificent seven’ became so large that the Nasdaq 100 index had to implement a ‘special rebalance’3 to ensure that funds tracking the index did not breach industry-wide concentration limits set by regulators. There are early signs of a divergence in the risk characteristics between the equal weight and market-cap weighted versions of the S&P 500; which represents the primary opportunity the fund aims to capture.
Russell Jones, Head of Index Equities, L&G Asset Management: “Over the past two-and-a-half decades US benchmarks have never been as concentrated as they are today. We know that this is a growing concern as single stock momentum trends and volatility in the mega-cap tech sector continues. This launch of our equal weight strategy is in response to this, seeking to provide investors with balanced exposure to both the risk and return profile of the entire S&P 500, rather than the seven stocks that have dominated the index in recent years.”
The Fund will be managed by Russell Jones, supported by LGIM’s deeply experienced Index Fund Management team, which manages over $100bn4 in Assets under Management and comprises 25 managers, with an average industry experience of 15 years.
Further information
Andrew Gates
Senior Communications Manager
Asset Management
T: +44 07702 118262
Will Throp
Communications Manager
Asset Management
T: +44 (0)7791 899779
Notes to editors
Established in 1836, Legal & General is one of the UK's leading financial services groups and a major global investor, with £1.2 trillion in total assets under management (as at HY24) of which c40% (circa £0.5 trillion) is international.
We have a highly synergistic business model, which continues to drive strong returns. We are a leading international player in Institutional Retirement, in Retail Savings and Protection, and in both public and private markets through our Asset Management division. Across the Group, we are committed to responsible investing and dedicated to serving the long-term savings and investment needs of customers and society.
As at 11 December 2024, Legal & General has a market capitalisation of 13.7 billion.
L&G’s Asset Management division is one of Europe’s largest and a major global investor across public and private markets, with £1.2 trillion in assets under management1.
The division combines deep expertise in asset management and origination with global distribution capabilities to deliver positive outcomes for our clients, which include individual savers, pension scheme members and global institutions, investing alongside L&G’s own balance sheet. As a global investor, we are present where our clients need us – from Hong Kong and Singapore, to major European financial hubs, to Chicago – operating under the Legal & General and LGIM brands.
We provide investment solutions across the full spectrum of asset classes, ranging from index-tracking and active funds to liquidity and liability-based risk management strategies. Through our private markets platform, we utilise our rich heritage and extensive network of partners to offer access to a wide range of purposeful alternative investment opportunities, including specialist real estate, clean energy, infrastructure, venture capital, unlisted equities and private credit.
Our division is underpinned by our enduring commitment to responsible investment, dedicated to creating long-term, sustainable value for our clients and partners.
1Data as at 31 December 2023.