Factors such as cost may be leading more people to consider an indexed approach to multi-asset investing but they should not assume this is equally effective across all asset classes, warns Legal & General Investment Management (LGIM) multi-asset manager Justin Onuekwusi in this video interview.
Talking to Professional Adviser editor Julian Marr in the above video Onuekwusi (pictured) considers why index funds are increasingly being used in multi-asset strategies and later goes on to make the distinction between a 'multi-index' manager and a 'passive multi-asset' manager.
While few multi-asset portfolios took any sort of indexed approach prior to 2008, he says, the performance of many active funds in the years since the financial crisis and, of course, considerations of cost have driven huge growth in the sector.
Onuekwusi explains: "Firstly, given the unbundling of share classes, costs are simply a lot more visible with advisers these days and it has meant they have started to seek out more cost-effective multi-asset solutions. Investing in index 'building blocks' is more cost-effective than what may be considered an older multi-manager third-party approach."
As for performance, Onuekwusi argues the average active fund manager has disappointed over time by failing to add enough value compared with costs and return. "That's not to say you can't pick a strong active fund manager," he adds. "But advisers have simply acted with their feet and said they want a more cost-effective solution."
'Multi-index' or 'passive multi-asset'?
Acknowledging there are some asset classes, such as direct property, that cannot be managed on an index basis, Onuekwusi says: "Within the multi-asset space, it's important not to index just for the sake of it.
"On the LGIM multi-asset team, we can go active - and we do go active - in asset classes that don't lend themselves to index fund management or when index fund management is simply not available."
Asked if he sees himself as a manager of passive multi-asset funds, Onuekwusi instead describes himself and his colleagues as multi-index managers, explaining: "We are active in terms of our asset allocation. We know asset allocation is a key driver of risk and therefore return in the multi-asset portfolio so we dynamically manage that over time."
To watch the first interview in the series, ‘Weathering the investment storm' through multi asset, please click here.
To watch the second interview in the series, The ‘four pillars' of multi-asset investing, please click here.
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