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L&G Global Technology Index Fund provides excellent exposure to the tech sector

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Without doubt the technology sector is an exciting place to invest. The sector has strong growth potential, has a disruptive influence creating new markets and industries, and has the potential to improve productivity in a panoply of industries.

However, it’s a vast and dynamic sector. To be sure some of its constituents are omnipotent global titans, such as Microsoft [Nasdaq:MSFT] and Google’s parent company, Alphabet [Nasdaq:GOOGL], but others are small, emergent and disruptive and offer the greatest of growth potential, but also the greatest of risk.

Trends are always emerging, such as Artificial Intelligence (AI) the buzzword of 2023, but others are diminishing, such as IoT (the Internet of Things), and cloud computing, the darlings of yesteryear (though vitally important, less newsy in 2024).

Talent spotting

However, the sector is globe-spanning and volatile with high valuations making it hard to identify the next Google, and making it an expensive mistake if your pick doesn’t reach its potential. Wouldn’t it be great if someone else could do the selecting and monitoring for you?

Well, the best option is to invest in a fund that will do this for you, and one such fund is the GBP2.2bn L&G Global Technology Index fund. But wait a minute, isn’t this a tracker fund that invests passively?

It’s not usual that we write about trackers in The Armchair Trader as they are perceived to lack the cut and thrust, and panache of a fund managed by a team of sharp-suited Cityboys and Citygirls. However, if you believe that the tech sector will rise, surely what you want to do is capture the overall growth of the sector without buying a Napster or MySpace.

Yes, a passive fund might not pick that one stock in a million that will become the next half-a-trillion dollar baby and overweight its position excessively, but then again it will invest in that company alongside many others and catch some of its momentum. We are talking about one-in-a-million, so the likelihood of spotting that stock is an outside chance, and one company is more likely to fail rather than a whole sector, and a tracker fund can give you diversification and protection should things go wrong.

Moreover – despite what the brochures and interviews with fund managers tell you – in the tech sector it is likely that an actively managed fund will look a lot like a passively managed fund, given the dominance of some names in the index, unless of course the manager is running a very uncorrelated, lean portfolio, which in itself has its risk implications.

All-in, an actively managed, vanilla global tech fund is likely to perform in a similar manner to a tracker, but you’ll be paying a fair bit more to keep those bright young things in their smart attire in a job, so if you want to get tech-level returns without the hassle, why not go down the passive route?

Global information technology activities

The L&G Global Technology Index fund has been in business since November 2000, and invests in the shares of global companies engaged in information technology activities. It’s quite chunky at over GBP2bn, so can get a fair spread and representation of its benchmark index, the FTSE World -Technology Index, and as it is passively-managed aims to replicate the performance of the index as closely as possible which over the last 10-years had a cumulative return of 291.87% which equates to an annual average return of 22.98%.

Obviously, this fund will not exactly replicate this, as it does still have management costs of 0.32% and a dilution adjustment of 0.11% however, it will be replicate performance closely.

The fund is managed collaboratively by Legal & General’s Index Fund management team of 25 fund managers and two analysts (who may or may not be cyborgs, but at the very least are part of a business that has invested a vast amount of time and money over decades creating an engine that closely correlates to a market). The average experience of the fund managers is 15-years.

Tracking the FTSE World-Technology Index

The L&G Global Technology Index fund doesn’t try to do anything special, it passes ‘the Ronseal Test’ in that it does what it says on the tin: aiming to track the performance of the FTSE World-Technology Index seeking to replicate as closely as possible the constituents of the benchmark index by holding all, or substantially all, of the assets comprising the benchmark index in similar proportions to their weightings in the benchmark index. The fund will be at minimum 90% invested in the index. The fund is a unit trust and is available direct from L&G or through many investment platforms.

As is to be expected the lion’s share of the fund’s assets are in the US, the leading market in terms of IT, where at the end of 3Q23 the fund had parked 84.9% of its assets. Other markets that were covered were Taiwan, at 4.8% assets under management (AUM), and Japan at 2.9% AUM. Moreover, given the nature of the market and the giants that dominate it 91.5% of the fund was invested in large cap stocks.

Performance-wise, the fund has – unsurprisingly – more-or-less tracked the performance of the index both on an absolute and a discrete basis. In the year to the end of September 2023 the fund returned 28.92%, 1.97 percentage points behind the index. 2022 was a bad year for tech, and the index slipped -13.97%. L&G’s fund actually did slightly better than the index, dropping -13.78%. The year prior to this, 2021 again saw the fund outperform the index, beating its benchmark by 1.07 percentage points to return 30.23%.

On a cumulative basis, the L&G fund beat its benchmark over one-month, three-months and 12-months. Over five-years the fund returned 165.06%,

There are few surprises either about the fund’s top five holdings.

L&G Global Technology Index Fund top five holdings

Company Weighting Country
Apple [NASDAQ:AAPL] 18.0% United States
Microsoft [NASDAQ:MSFT] 18.0% United States
Nvidia [NASDAQ:NVDA] 7.2% United States
Alphabet [NASDAQ:GOOGL] 5.1% United States
Meta Platforms [NASDAQ:META] 4.6% United States

Source: Legal & General 30/09/2023

The Top 10 holdings of the fund make up 66.1% of the total portfolio. The fund is fully-invested.

The L&G Global Technology Index will give investors excellent exposure to the global technology sector. If you want exposure to this sector, there are worse ways of providing for it in your portfolio. If you believe in technology, believe in the clever computers that drive the engine that tracks the market. There are other trackers and Exchange Traded Funds on the market, but they do the same thing for the same price. If your flavour is more specialist, this fund isn’t for you but as a window on the global tech market, it’s a strong contender.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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