In a turbulent market that is affecting all asset classes, don't you just find many of your clients are favouring the quiet life. For many investors, steady returns on a year in year out basis may sound like a cautious, but attractive option. And, finding the investment with the potential to achieve it is right on your doorstep.
In 2007, building societies attracted a record £16 billion of savings inflows, almost doubling the amount for 2006 (1). This statistic is simple proof that the increasingly volatile market conditions experienced over the last year, has sent investors running for the perceived safety of cash investments.
What are investors experiencing?
David North, Head of Asset Allocation at Legal & General Investment Management Limited (LGIM) says,
“Since the middle of last year, retail investor sentiment has deteriorated, markets have become more volatile and it's no surprise that investors have switched their investments into safer assets such as cash. The outlook for the UK economy, with inflationary pressure from rising energy and food prices, has worsened and as a consequence future company earnings and the direction of markets has become less certain.
In times such as these, holding cash is no long term solution as investment returns are eroded by inflation. It's important that multi-asset funds, such as the Distribution Fund, are used by investors, as the right allocation strategy and expertise of our investment professionals can add both short and long term relative value. Our approach to managing the Distribution Fund range has seen a positive shift away from more volatile assets such as mid-cap equities and commercial property into large-cap equities and fixed income assets including cash. In short, one of the aims of the Distribution Fund is to protect investors capital from the effects of inflation, which can make life easier for the financial adviser."
Asset allocation is key
Regardless of the tax wrapper, the answer to providing a steady long term return on an investment is asset allocation. Legal & General has a range of six distribution funds, available through most of the major tax wrappers:
- Onshore and offshore bonds.
- Personal pension, SIPP.
- Unit trust and ISA.
Five out of six of these funds, each of which is managed for income, growth or a combination of the two, are diversified to include investments in all the major asset classes. Their portfolios include varying proportions (depending on the fund objective) of:
- Equities (UK and overseas).
- Fixed income assets (UK and overseas).
- UK Commercial property.
Legal & General’s flagship Distribution Fund, launched in May 1994, has delivered a consistent income stream throughout its lifetime (never reducing) and is now the largest fund in its peer group (2). The current fund size is a staggering £5.8 billion (3) in funds under management and an average yearly return since launch of 7.53% (4) for its investors.
Past performance is not an indicator of future performance.
David North, also Lead Portfolio Manager for all Legal & General’s distribution funds, is clear about the reasons behind the success of these funds. He says, “There are several factors involved:
- The breadth of investment choice available to my team of managers – our active team, our passive team, derivatives and futures markets.
- The size and scale of the funds under management make it easier to do things that are beyond the scope of a much smaller portfolio.
- Having an active asset allocation approach.
- The size and expertise of my management team – I pick the markets and my team of 15 fund managers pick the companies and assets.
- Regular and numerous meetings with senior management of companies give access to up-to-date and experienced ideas and opinions on market trends.
The value of an investment in this fund can fall as well as rise and an investor may not get back the full amount of their investment.
For further insight into the investment strategy behind the success of Legal & General’s range of distribution funds and David North’s outlook for the future, visit www.legalandgeneral.com/dfunds
Senior Marketing Manager (IFA Wealth)
Legal & General
- (1) Source: Building Societies Association, January 2008
- (2) Source: Lipper May 2008
- (3) Source: LGIM, 31 March 2008
- (4) Source: LGIM, 01/06/1994 – 02/06/2008 offer-offer UK basic rate tax £
This is not a consumer advertisement. It is intended for professional financial advisers and should not be relied upon by private investors or any other persons.
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