Legal & General International Index Trust

alex24

Could someone explain why the Legal & General International Index Trust had such a sharp fall (-2.35%) yesterday when global markets haven't had such a decline? I understand funds are priced on the previous days trade, however this seems quite a steep one day fall when markets haven't been hit that hard this week. Thank you

A_T

It's because the pound rose sharply against foreign currencies - so all the foreign holdings are worth less in sterling terms.

Afraid_of_Kittens

Last week the FTSE dropped. The Legal and General UK Index dropped and I purchased £1000 of units on the 4th October in my stocks and shares ISA - their value has risen this week so have already made about £17.70. Most of my other L&G investments fell in value beasue of the strngthining pound. My L&G Tech fund has increased by over 30% so far this year. Tech bubble continues to grow.

https://www.trustnet.com/factsheets/o/l559/lg-global-technology-index-trust-i-acc

GBY

Thanks for the explanation, I'd been wondering also. Bad timing as I'd recently invested a lump sum in my pension world tracker.

talexuser

Wait for the next headline that no deal is now in prospect, the £ will fall again.

Prism

If over the next few weeks we get a Brexit deal or second ref then you might expect a fairly fast 10% drop in global equity funds. Only really a reverse of what's happened over the last 18 months

Afraid_of_Kittens

GBY wrote: »

Thanks for the explanation, I'd been wondering also. Bad timing as I'd recently invested a lump sum in my pension world tracker.

Drip feed money every month. Resist the temptation to look at performance every day. Have a look in a years time. Diversify with other funds (I have 7). Rebalance. Your investment is like a roller coaster - great as it goes up but scary when it plummets earthwards. There will be years when your funds will go backwards and make a loss but other years when it makes massive gains. Come the next recession hold your stomach as 30% or more is wiped off the vaue of your funds. It may take years to recover, but recover they will.

GBY

Afraid_of_Kittens wrote: »

Drip feed money every month. Resist the temptation to look at performance every day. Have a look in a years time. Diversify with other funds (I have 7). Rebalance. Your investment is like a roller coaster - great as it goes up but scary when it plummets earthwards. There will be years when your funds will go backwards and make a loss but other years when it makes massive gains. Come the next recession hold your stomach as 30% or more is wiped off the vaue of your funds. It may take years to recover, but recover they will.

Good advice.

Thrugelmir

GBY wrote: »

Thanks for the explanation, I'd been wondering also. Bad timing as I'd recently invested a lump sum in my pension world tracker.

Currency fluctuations are part and parcel of holding international shares. Magnify both the gains and the losses in capital value.

Fund valuation is 3pm every day.

neildt

In order to avoid currency fluctuations should i consider investing in a Vanguard US 500 Stock Index (USD) instead of the legal and general US Index (GBP)

bowlhead99

neildt wrote: »

In order to avoid currency fluctuations should i consider investing in a Vanguard US 500 Stock Index (USD) instead of the legal and general US Index (GBP)

No, that doesn't avoid any fluctuations at all. You are investing in most of the same underlying assets in both funds. The funds both invest in US-listed companies like Microsoft, Apple, Google, Amazon, Exxon, JP Morgan Chase, etc etc which do most of their business in dollars and are valued by the stockmarkets in dollars.

For example: if you buy a fund that puts 5% of its money into Microsoft, and Microsoft shares are worth $140 each this week, and are still worth $140 each next week, and have not paid any dividends in the meantime, the fund will not make any money in dollars.

However if $140 is worth £109 today (at an exchange rate of 1.28 dollars to the pound) and $140 is worth £99 next week (at an exchange rate of 1.41 dollars to the pound), you as a UK investor holding a microsoft share will have lost a tenner. By contrast if the pound weakens and there are only 1.175 dollars to the pound, the $140 microsoft share will be worth £119 and you as the UK investor holding a microsoft share will have gained a tenner.

So - buying foreign assets exposes you to exchange rate movements.

Whether you choose to invest in a fund that holds dollar assets but displays its own share price in GBP such as "Legal and General US Index (GBP)", or you invest in a fund that holds dollar assets and displays its own share price in dollars, "Vanguard US 500 Stock Index (USD)" you don't magically avoid currency fluctuations, because the fluctuations are caused by you measuring your returns in pounds while the Microsoft shares owned by both funds are now worth fewer pounds because of exchange rate movements.

If this isn't already clear, think of it this way:
- If a fund holds microsoft shares and dollars weaken so that the microsoft shares are now worth fewer pounds, you will lose money.

- If the fund displays its share price in pounds, it will have to show that its share price is a lower amount of pounds, because the microsoft shares it owns are worth fewer pounds. So you have lost pounds by holding that fund.

- If instead the fund displays its share price in dollars, it will not show that its share price is a lower amount of dollars, because the microsoft shares are not a lower amount of dollars. However, when you hold a fund that is worth the same amount of dollars, and dollars are worth fewer pounds, your fund is worth fewer pounds, even if it chooses to display the fund price in dollars. You have still lost pounds by holding that fund.

If you want to add more complexity there are some specialist index funds that 'hedge' currency movements back to pounds with the intention that if the dollar index is flat or goes up or down, the fund value in pounds will also be flat or go up or down. However it costs them money to put those hedges in place (forward contracts, other derivatives etc) and you will be missing out on any gains (or reduction of losses) that would have happened if exchange rate movements were in your favour and you were unhedged.

As it happens, I hold a few thousand worth of "iShares Core S&P 500 UCITS ETF" in the GBP Hedged share class (GSPX). But most people do not use such complexities.