Multi-assetNov 2 2015

Fund Review: Lgim Multi Index 5 fund

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Legal & General Investment Management launched its Multi-index range of risk-targeted funds in August 2013.

The aim of each product is to generate capital growth and income and to keep the portfolio within a predetermined risk profile while investing across the asset classes. The £192m Multi-index 5 fund sits firmly in the middle of the range, which targets risk profiles from three through to seven and is positioned at level four on a risk-reward scale. Ongoing charges are 0.31 per cent on the I share class, which is the clean free retail share class.

Manager Justin Onuekwusi says the range is built on “four pillars of multi-asset investing”, the first of which is suitability. He explains: “Advisers have told us they need to ensure multi-asset funds not only have initial suitability, but also ongoing suitability. This means risk-targeted [funds] for us.”

The second pillar is based on cost-effectiveness, which is not simply a response to the RDR. “Advisers are starting to realise that costs can impact outcomes – the higher the costs, the more they detract from the overall outcomes,” he says. “The third point advisers wanted was active asset allocation. The realisation of the importance of asset allocation has really come to the fore now the investment community is focused on outcomes, and it’s clear it is a key driver of risk and therefore returns in a multi-asset portfolio.”

The fourth pillar is simplicity. The manager notes: “Advisers say [if] you make a fund complex and full of derivatives, [then it will] only be a small part of our clients’ portfolios. To be a core part you have to be simple, understandable and transparent.”

He believes it is important not to “blindly follow” a risk profile – which tends to be a backwards-looking measure of risk – and this has been avoided in the fund range by building a portfolio that looks ahead to the next five to 10 years. “We then ask [if] there are any risks or opportunities we haven’t taken into account in the long-term asset allocation over the next one to five years. We don’t use these allocations and say we’re going to go overweight this or underweight that, we build our own from the bottom up.”