Right now I’m analysing some of the most popular companies in the FTSE 100 to establish if they are attractive long-term buy and forget investments.
Today I’m looking at Legal & General (LSE: LGEN).
What is the sustainable competitive advantage?
Legal & General’s main competitive advantage is its size. Specifically, the company’s assets under management, which totalled $563 billion at the end of 2012.
In comparison, Legal & General’s largest London-listed peer, Aviva, had $513 billion in assets under management at the end of 2012.
Having said that, the insurance market is highly competitive and despite its size, Legal & General is unable to set the prices on its products and services, as it is being constantly undercut by its peers.
However, Legal & General is not just limited to insurance and the company does offer a variety of financial services, some of which can be highly lucrative. In particular, in addition to insurance, the firm offers fund, pension and wealth management services.
Furthermore, thanks to its size and huge base of assets under management, Legal & General is able to achieve economies of scale on its financial services, which many of its peers can’t achieve.
Company’s long term outlook?
Thanks to Legal & General’s size, it is unlikely that the company will fall from its perch at the top of the industry any time soon.
Indeed, it seems that Legal & General has grown to be ‘too big to fail’, as the company manages more than half-a-trillion dollars of customer funds, the loss of which would cause serious repercussions around the world. At the time of its bailout in 2008, Lloyd’s had a similar value of assets under its control.
Moreover, it is likely that the demand for Legal & General’s products and services will only grow over time along with the world’s growing population and rising wealth.
Lastly, I should mention that Legal & General issued its first insurance policy 175 years ago, so the company has nearly two centuries of history behind it — a great trait in a buy and forget share.
All in all, as one of the largest insurance companies in the world with two centuries of history behind it, Legal & General’s size and experience alone lead me to believe the company would make a great share for the long term.
So overall, I rate Legal & General as a very good share to buy and forget.
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Rupert does not own any share mentioned in this article.