Legal & General Investment Management has launched three new index funds designed to give UK wholesale investors targeted exposure to equity market “factors”, in a bid to broaden the reach of a strategy long established among institutions.
The new range — the L&G Developed World Momentum Factor Index Fund, the L&G Developed World Quality Factor Index Fund and the L&G Developed World Value Factor Index Fund — will track customised indices created with iSTOXX. Each applies L&G’s proprietary factor scoring system to companies across developed markets.
What is factor investing?
Factor investing, which tilts portfolios towards characteristics such as momentum, value or quality, has gained traction with pension funds and other large institutions. But its penetration of the UK wholesale market remains limited, where investors typically opt for either traditional passive products or actively managed funds.
Ben Cherrington, head of UK wholesale at L&G Asset Management, said the firm saw “clear demand” from intermediaries for differentiated tools to diversify portfolios. “Factor investing has been underrepresented in wholesale portfolios, and so we have pooled our internal expertise to develop something that is both differentiated, while meeting the distinct requirements of our end-investors,” he said.
The momentum fund will focus on companies that have recently demonstrated strong share price performance or rapid growth. The quality strategy targets businesses with resilient earnings, high profitability and low leverage, while the value fund will tilt towards companies judged undervalued relative to peers.
L&G said the indices had been designed to incorporate practical considerations such as turnover and transaction costs, often a challenge for factor-based strategies.
Stefan Bilby, head of index distribution at L&G Asset Management, said market conditions strengthened the case for such approaches. “With the market environment remaining volatile and uncertain, the role for factor strategies is highly relevant given their ability to enhance diversification, manage risk, and capture persistent sources of return,” he said.
The new funds will be run by L&G’s Index Solutions team, which manages more than £500bn in assets and has three decades of experience in index design.
