Asset AllocatorMay 25 2023

LGIM portfolio change hints at wider allocation trend

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LGIM portfolio change hints at wider allocation trend

Much has changed at LGIM in recent months, with the departure of long-serving multi-asset boss Justin Onuekwusi who is now at St James's Place.

Lead management on the firm's MPS range as well as the broader index fund range is now with Andrzej Pioch, who was previously co-manager, while the company's head of multi-asset John Roe will provide oversight. 

And in terms of how they are positioned right now, the decade-old index fund range has its lowest ever allocation to equities with the model portfolios, which were launched last year, similarly underweight. 

This is because, says Roe, current market expectations are for a "shallow" recession, but with investors being optimistic that it won't derail equity markets. 

But his view is that the looming recession may be deeper than expected, and certainly strong enough to negatively impact equity markets. 

Roe's view is that the traditional 60/40 portfolio no longer works as the basis for a balanced portfolio, with there being a persistent need to own alternative assets such as infrastructure and emerging market debt. 

Indeed here Roe is simply reflecting a wider change in attitude among portfolio builders. A glance at our allocations tracker shows the 60/40 portfolio is a thing of the past.

But Roe does believe that at a time of sharp recession, government bonds will revert to their traditional role as a diversifier. Roe says: "Even during the recessions of the 1970s and 80s, bonds did well when equities did not. And those were recessions which occurred when inflation was quite high." 

Another feature of their portfolios right now is an effort to be not quite as exposed to US equities as is the wider market, this is less a comment on that market right now, than a longer-term view that "it will become harder to justify to clients that they haver two-thirds of their equity exposure in one market, when that market falls as it did last year".