The use of index funds in multi-asset portfolios

Five fund facts

  1. A risk targeted solution – A range of five risk-targeted multi-asset funds that are suitable on the day of recommendation and remain within the risk mandate on an on-going basis
  2. Diversification – funds have exposure to physical property, giving true multi-asset diversification and yield enhancement over cash.
  3. Dynamic asset allocation – allows the fund management team to respond to market events and aim for maximum returns within the risk mandate of each portfolio.
  4. Low cost – invests in mainstream asset classes predominantly via Legal & General index funds, keeping costs low – AMC 0.25%, OCF 0.31% to 0.34%.
  5. Transparency – the focus on index funds makes keeping track of the portfolio simple for you and your clients. Our funds avoid the use of ETFs and stock lending.

The multi-asset landscape has changed over the years, but one constant is the need to choose building blocks with the right investment style to meet the needs of a particular strategy. There are many advantages to investing almost exclusively in index funds, especially with risk targeting in mind.

Risk-targeted, not just risk-rated

Risk rating services have sprung up to help advisers align their risk assessment process with fund selection. However, what if you can’t rely on a selected investment to consistently hold a particular rating? Fortunately, being risk-rated isn’t the only option; you can also get risk-targeted funds. Risk-targeted funds aim to maintain risk within a particular range, giving both adviser and client peace of mind.

When building a global multi-asset portfolio the key determinant of risk, and therefore returns, is going to be asset allocation rather than stock selection.

The rise of index

The move towards fee-based advice that came out of the Retail Distribution Review (RDR) has the potential to create a significant advice gap in the UK, pricing out people who will become the high net worth clients of tomorrow. The challenge for advisers and product providers is therefore to continue providing a high quality service but to do so at a level of cost that is suitable for the mass affluent market.

Any solution therefore needs to reduce some of the key costs of the advice process. This can be achieved by a move towards index funds, which often have considerably lower costs than their active equivalents. Bringing these together in a diversified multi-asset portfolio can also greatly simplify an adviser’s research, due diligence and transactional workload.

Actively ‘passive’

When building a global multi-asset portfolio the key determinant of risk, and therefore returns, is going to be asset allocation rather than stock selection. If anything, the ability to be active in asset allocation is more important now than it has ever been. Investment markets are beset by many uncertainties, with the global economic malaise that was triggered by the debt crisis continuing to have far-reaching effects.

For multi-asset fund managers, however, it is important to always have visibility and control over the asset allocation process. The transparency of index funds allows a multi-asset fund manager to concentrate on reacting to today’s challenging economic environments whilst dynamically adjusting asset allocation in order to deliver attractive returns.

Legal & General Investments has developed a suite of multi-asset funds to help meet the needs of advisers and their clients. Its Multi-Index fund range brings together all the important elements of multi-asset investing. Because Legal & General manages almost all of the constituent asset classes through its index funds, it can offer extremely competitive pricing for these diverse, risk-targeted portfolios without compromising on quality.

For more information call 0845 070 8684 or visit

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.

The value of investments and any income from them may fall as well as rise, and investors may get back less than they invest. Exchange rate changes may cause the value of any overseas investments to rise or fall. Multi-Index funds are sensitive to interest rate changes. An increase in the medium to long-term interest rates is likely to reduce the value of an investment in these funds. At times, especially over shorter timescales, lower risk-rated funds may fall in value by more than higher risk-rated funds. Details of the specific and general risks associated with the funds mentioned are contained within the Key Investor Information documents. Call charges will vary.

Legal & General (Unit Trust Managers) Limited. Registered in England and Wales No. 1009418. Registered office: One Coleman Street, London EC2R 5AA. Authorised and regulated by the Financial Conduct Authority.