A spotlight on multi-index

by | May 25, 2023

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For professional investors only. Capital at risk.

An IFA Magazine Q&A with LGIM’s Andrzej Pioch and John Roe

The Multi-Index team at LGIM is celebrating success after its flagship fund range won the ‘Best risk managed fund range’ prize at this year’s Professional Adviser 2023.

We thought it would be a great opportunity to catch up with the team to see how things are going.

 
 

In this Q&A, IFA Magazine Editor, Sue Whitbread, was chatting with LGIM’s Andrzej Pioch and John Roe about investing for today and the future, navigating the twists and turns in global financial markets.

We believe that advisers will be reassured to know that it’s very much ‘business as usual’ when it comes to the management of LGIM’s popular multi-index funds, which have established themselves as firm favourites with many advisers over the years.

Sue Whitbread: It’s certainly been an eventful start to 2023 for investors, but what were the key things which stood out for you in these last few months?

Andrzej Pioch: I think it would have to be the banking crisis that started in the US but then spread to Europe. I think it was a reminder for all of us that a lot has changed over the last 12-18 months, and that fund managers operate in a very different environment today. So far, the market reaction has been quite muted, especially within equities, but we saw more volatility in credit. More broadly, it impacted market expectations when it comes to US base rates by the end of this year, which are now lower than before.

 

Also, outside of the economic and market developments, as eventful as these have been, we also had some changes within our Multi-Index team. As readers will probably know, our colleague, Justin Oneukwusi, has left LGIM to become the CIO at St James’s Place. Justin and I have worked together at LGIM for nearly 13 years, so I will certainly miss him and our daily discussions, but when I heard the news, I was ultimately very happy for him. I think it’s a fantastic opportunity and I know he’ll be brilliant in the role.

Sue Whitbread: Indeed, but what does that news of Justin’s departure mean for the funds you manage? Are there any changes or will it be business as usual?

Andrzej Pioch: It’s very much business as usual for the team. In terms of day-to-day fund management and the investment process, there will be no immediate changes. I’ve been here managing the funds with Justin since 2015 so I will ensure that consistency. I have also been co-lead on the Multi-Index Income range since 2015 and the lead on our ESG range since its launch in 2019. I hope that advisers can see that as I’ve fed heavily into the way that we manage these funds, we don’t expect any immediate changes and they can be confident that their clients will receive just the same service from us as has been the case to date.

What will change however, is that I’ll become the lead fund manager on our full range of multi-index funds. My colleague Francis Chua will very much remain a co-manager for these funds as well. We’re currently in the process of scoping out what kind of resources we need and what kind of support we will need going forward, both for our existing proposition but also for our future growth plans.

 

Sue Whitbread: John, as Head of Multi-Asset Funds at LGIM, could I ask for your view on what Justin’s departure might mean for the wider team and the way you all work together?

John Roe: We’ve always operated using a very team-based approach, with lots of specialists working together to benefit from a diversity of ideas, experiences and insight. There are around 40 of us in the wider Asset Allocation team, each individual working in their areas of focus to deliver on our common goals. None of that changes as you’d expect – this is a benefit of this approach. The whole process is designed so as not to be too reliant on any one individual so that’s why we always have multiple fund managers working on the Multi-Index range; the continuity this brings. It’s like working in a factory where each person has their own station. They focus on that station and, in the end, you get a great product but each individual is only part of the process. In our view, this is a robust way of working that increases repeatability while also limiting exposure to any one person.

Sue Whitbread: John, how will you be involved personally in the management and oversight of LGIM’s Multi-Index funds going forwards?

John Roe: I’d summarise my involvement as being a sounding board for Andrzej and Francis. I already provide oversight on the funds every month; I go through the portfolios with Andrzej to question positioning, and how that fits with our central common investment strategy. I’ve just increased my focus a bit more to give the team another perspective for the bigger decisions, now that Justin isn’t available to be that voice. All of it will continue to be built around our overall investment process, leaning on the work of our economists and then the central investment strategy from our strategists. I’ll just be acting as another voice and a challenge on the sizing of positions. I’ve been at LGIM for almost 14 years, and I hired pretty much everyone on the fund management team, so I know we’ve got a great team that works really well together, while playing to our individual strengths – That will not change.

Andrzej Pioch: From my point of view, it’s fantastic to have these more frequent interactions with John now. We are both quite different, with different personality types. So, as a lead portfolio manager, I always find it helpful to get that different perspective. When it boils down to it, I’d argue that’s what the cognitive diversity of the team is all about. And it’s particularly handy to have proper discussions and hear different views when markets are as volatile as they are today and there is so much uncertainty around the short-term economic outlook.

 

Sue Whitbread: When there is so much to market and economic uncertainty, what are the key things you think about when constructing multi-asset funds?

John Roe: There certainly is a lot of uncertainty out there. Interest rates have been hiked a lot and that often leads to cracks emerging, be that in banks and other financial institutions, or in other parts of the economy. It’s important to bear in mind that different regions face their own differentiated risks, whether that’s Europe, the US, China or Japan currently. We believe that this all reiterates the importance of having structural diversification as the starting point for investing, which has always been the strategy we have used for the funds. Nobody knows with certainty what’s going to happen, and we could get very divergent outcomes by region. This really reinforces the importance of diversifying the assets, so we’re not overly exposed to any one shock, and this is something we’re committed to as a team.

Andrzej Pioch: As John mentioned, that structural diversification runs through everything we do. Since 2019, we’ve been managing our Future World Multi- Index ESG funds following the same principles, which are based on diversification and cost effectiveness. That’s simply because there was no reason why ESG investors should expect any less. 2022 was a wakeup call for some ESG investors who found out the potential consequences of having implicit concentration or implicit biases toward certain equity factors. So, we believe diversification is critically important for all our fund ranges.

John Roe: In some ways I’d say that it’s even more important for ESG investing. That’s because, as Andrzej says, it’s easier to pick up the biases, for example, you’re going to pick up a lot of holdings which are tech related. You’re going to get a lot of smaller companies because you’re looking at future technologies. You’re probably not going to benefit from as much exposure to oil and gas, which are diversifiers to other parts of the economy. So, if you get a commodity shock like we saw in 2022, in a way the more you try to tilt a portfolio for one thing, the more you’ve got to make sure you don’t pick up these unintended concentrations elsewhere.

 

Sue Whitbread: As fund managers, it must get pretty stressful managing client money in such uncertain conditions; does it take your whole life? If so, how do you deal with it?

Andrzej Pioch: Yes, it certainly is very stressful. However, we’re fortunate to be the trusted custodians of our clients’ investments; it’s a responsibility we
never forget and take incredibly seriously. It’s just about finding ways to handle the stress that work for us as individuals. I’m a really strong believer in the importance of restoring balance to my week. When I have the opportunity to rest, I really make a conscious effort to make the most of it. For me, what that means is by Friday afternoon, I’m quite disciplined to switch off all my devices for 24 hours until Saturday night and have a digital detox. That gives me the opportunity to properly recharge for whatever the next week might bring. During the week, I start the day with a swim in the morning. It’s a great way to wake you up, but also prioritise; as I’m doing laps, I think what I need to do once I get to the office and to make sure I’m at my best.

John Roe: As Andrzej says, it can be very stressful as we take our responsibilities to clients so seriously. I don’t really get ‘happy’ when we do well for clients, as it’s what we’re always aiming for and they deserve that, so we see it as a given. It’s what they expect. Then, when you have worse days, which inevitably you do when markets are volatile, then it affects me because I feel responsible to those clients. I like to switch off normally by getting overly involved in football or brewing beer or something like that.

Sue Whitbread: Looking forward, while the market outlook remains uncertain, what’s your view on what else 2023 might bring?

John Roe: We are very worried about where else cracks will show – there’s never only one bad apple. We worry that the things we’ve seen in the first quarter may not be as isolated as they might appear. There are lots of sectors where companies have borrowed money and where the costs of borrowing money will now have gone up. Looking back, it’s often been the case that rapid changes in interest rates have been a precursor for financial crises. We’re very concerned about reduced credit availability for the rest of the year and rising risk of a US recession. In aggregate, that increases our concern and how cautious we want to be in our positioning of the funds.

 

Sue Whitbread: Can you elaborate on what this means for the positioning of the LGIM Multi-Index fund range?

Andrzej Pioch: As John said, the main thing for us is to be cautiously positioned and we do this by holding less in equities and investment grade credit. I think that’s really important, particularly when we see a growing risk of recession. On the flip side, we’ve been adding more duration: so, as yields went up, we thought bonds started to look more attractive, as a result we’ve been adding to that exposure across the multi-index range. We believe that’s the right approach for medium to long-term investors as well, because even where the yields are today, they can lock in those higher yields. That’s certainly quite different from how we thought about bonds even 12 months ago.

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About John Roe – Head of Multi-Asset Funds

John has been leading LGIM’s multi-asset fund management team since 2013. Within Asset Allocation, the team manages both a range of award-winning macro strategies and factor-based investment strategies, working closely with the rest of Asset Allocation. After joining LGIM in multi-asset solutions in 2009, he developed LGIM’s diversified growth fund range, which he continues to co-manage. Until late 2016, John was also a director of Legal & General Assurance (Pensions Management) Limited. Prior to joining LGIM, John worked in insurance advisory at Royal Bank of Scotland and Tillinghast Towers Perrin. He is a fellow of the Institute of Actuaries and has a first-class BSc in Economics and Econometrics from the University of Nottingham.

About Andrzej Pioch – Fund Manager

Andrzej is a fund manager in the Multi-Asset Funds team. His responsibilities cover the portfolio management and ongoing development of both institutional and retail multi-asset funds and he leads on the management of the award-winning L&G Multi-Index fund range. Prior to joining LGIM in July 2014, he was a fund manager at Aviva Investors. He is a CFA charterholder and completed the MSc programme in Finance at Bocconi University in Milan. He also holds a bachelor’s degree in economics and social science from Utrecht University. An ESG advocate, Andrzej holds GARP’s Sustainability and Climate Risk (SCR®) Certificate and lectures at Queen Mary University of London on Portfolio Construction and Asset Allocation.

Click here for more information about LGIM

Important Information: For professional clients only. Past performance is not a guide to the future. The value of an investment and any income taken from it is not guaranteed and can go down as well as up, you may not get back the amount you originally invested. Views expressed are of LGIM as at [insert date]. The Information in this document (a) is for information purposes only and we are not soliciting any action based on it, and (b) is not a recommendation to buy or sell securities or pursue a particular investment strategy; and (c) is not investment, legal, regulatory or tax advice. Legal & General Investment Management Limited. Registered in England and Wales No. 02091894. Registered Office: One Coleman Street, London, EC2R 5AA. Authorised and regulated by the Financial Conduct Authority, No. 119272.

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