In last month’s edition of IFA Magazine, Sue Whitbread spoke to LGIM’s Andrzej Pioch and John Roe about Multi-Index investing for today and the future and how investment managers might navigate the twists and turns in global financial markets.
In what was a very popular lead story in the May edition of IFA Magazine, LGIM’s Fund Manager, Andrzej Pioch and Head of Multi-Asset Funds, John Roe candidly highlighted the uncertain times that the market is going through and discussed the strategy that their Multi-Index team have adopted to navigate their way through.
LGIM’s Multi-Index fund range is its flagship multi-asset offering for financial advisers and wealth managers. These risk-targeted funds are built on five key investing pillars of multi-asset investing: suitability, dynamic asset allocation, diversification, cost effectiveness and engagement.
The LGIM team targets the risk characteristics of the Distribution Technology asset allocation but then build the portfolio based on their own long-term assumptions. They believe that their focus on staying within clients’ risk parameter is a differentiating factor for us.
Whilst various strategies could be argued for, one thing that is indisputable is that market conditions are as tough as ever and with banks collapsing, interest rates rising, inflation proving to be stickier than many first thought, a heightened risk of recession and investments spiralling, a more pessimistic outlook is reasonable.
John Roe echoed this sentiment as he told IFA Magazine that whether he looks back over the past three months or forward to the next three, there remains a worry about the cracks that have begun to show in the market and also where else they may appear in the future.
He said: “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.”
The outlook from John is a cautious one as he fears that the uncertainty will continue to impact markets and investments and thus tough financial decisions are on the horizon for many investors and advisers.
We believe a potential solution for advisers and their clients which is offered by LGIM is their Multi-Index funds. LGIM have over 40 years’ experience in Multi-Index funds and are part of the wider Asset Allocation team of 30+ and £7.7 billion AUM, so it might be safe to assume that a robust strategy will be utilised.
Exactly what a ‘robust’ strategy is has been debated endlessly, but Andrzej Pioch told IFA Magazine that he believes a cautious approach is the most likely to allow success in these circumstances.
He 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.”
A cautious approach to multi-index investing may well prove to be the most responsible action to help navigate a tricky period for investors, in our view. However, Andrzej also believes that it will be beneficial in the medium and long-term as well.
He continued:“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.”
Whilst safe-guarding investments against volatility and inflation is vital for the success of multi-index funds, LGIM’s positive approach to ESG is also a non-negotiable when it comes to its particular fund range.
LGIM has developed its own transparent ESG scoring methodology to assess investee companies’ actions in delivering long-term positive change. LGIM has brought together experts from its Investments and Investment Stewardship teams to establish Global Research and Engagement Groups (GREGs) that devote their time and resources to identifying and tackling emerging ESG issues across a range of sectors.
Andrzej Pioch and John Roe discussed why and how LGIM is combining an ESG stance with strong diversification that aims to allow both positive outcomes for investors while ensuring positive actions from investee companies.
Andrzej said: “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 added: “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.”
To find out more about LGIM’s Multi-index funds click here
To read the full conversation with Andrzej Pioch and John Roe click here
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. It should be noted that diversification is no guarantee against a loss in a declining market. Views expressed are of LGIM as at May 2023. 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
