Index strategies

Drawing on our scale and size, we have run index strategies for more than three decades

Our commitment to index investing is unequivocal and we are committed to delivering effective solutions for our clients. As a house, we manage over US$641 billion* of index assets underpinned by our pragmatic replication philosophy, we offer customised index and dynamic portfolio solutions

LGIM’s approach to index investment

We believe that three pillars of our indexing business will help us remain a trusted partner to those seeking to use index strategies in their portfolios:

Our scale

With US$641* billion of index assets under management (AUM) and product breadth across more than 400 index portfolios to meet any client’s needs, we use our size to both glean insights to improve client outcomes and to generate efficiencies that we can pass on to clients.

Our responsibility

As well as helping our clients reflect their environmental, social, and governance (ESG) views in index strategies, we use our scale as one of the world’s largest shareholders to raise standards across the entire market.

Our expertise

Having run index strategies for more than three decades, we have developed resources, methodologies, and technologies to manage indices efficiently. These include a dedicated index research and strategy function. We pass all the benefits – the cost savings and the added value – along to our clients.

Each of these pillars supports one purpose: providing our clients with everything they are entitled to as asset owners, not just an index’s returns.

Pragmatic replication

At LGIM, we have developed our own philosophy on the management of index strategies that we call ‘pragmatic replication’, an approach that is focused on delivering the best value for our investors. The overarching objective is to track the benchmark index as tightly as possible, using our in-house expertise, resources and technology to undertake comprehensive research aimed at enhancing investor returns when managing index changes.

Through such techniques, we believe we can reduce turnover and costs when trading and seek to maximise returns by exploiting any short-term mispricing or inefficiencies.

How do we embed responsibility and ESG in our index strategies?

Clients trust us to manage, safeguard and grow the value of their assets. We take this responsibility seriously, and we manage our index strategies responsibly. As part of this commitment, we integrate rigorous ESG criteria into our index strategies where our clients give us the mandate to do so. Fundamentally, we believe that companies that appropriately manage their ESG profile generally deliver better investment value over the long term.

We seek to meet these obligations in our index funds through the combination of three approaches:

Through company engagement: as a major global investor, we can have meaningful dialogue with corporate boards and executives on matters that impact long-term financial returns. We take a truly long-term view and use our scale to influence decisions.

Through a broader corporate governance lens: we address emerging issues, escalate concerns, and collaborate with other stakeholders, regulators and policymakers.

Through ESG integration: we can use our proprietary scoring tool to deliver meaningful improvements in our index strategies’ ESG profiles. Our ‘tilting’ approach allocates more capital to companies with higher ESG scores and less to companies with poor ESG scores, which we believe provides a compelling blend of impact, transparency, and market exposure.

Factor-based investing

A complement to active or index investing?

Factor-based investing (FBI) can help investors understand the source of returns. Academic research has shown that a number of common security characteristics or ‘factors’ have historically delivered improved returns relative to market-cap weighted indices over the long term, and FBI strategies allow investors to access these factors. As such, FBI can be viewed as a complement to active or index approaches when seeking specific objectives within a portfolio.

Contact us

Whether you’re looking for advice on institutional investing or a general asset management query, our friendly team will be on hand to support you.

Insights

Index on the LGIM blog

Read a range of short blogs from across the Index team

Responsible investing

Visit our site for responsible investing, which hosts a range of educational and thought-provoking articles, blogs and videos as well as a wealth of information on investment stewardship activity.

*Source: LGIM internal data as at 30 June 2024. The AUM disclosed is shown on the basis of client direct investments and excludes any double count from fund of fund holdings.

Key risks

The value of any investment and any income taken from it is not guaranteed and can go down as well as up, and investors may get back less than the amount originally invested.
Whilst we have incorporated ESG information into investment decision making and stewardship practices, there can be no assurance that any responsible investing goals will be met.