Legal & General Investment Management (LGIM) has expanded its Future World ESG multi-index range with two new funds, both combining a larger equity focus and, consequentially, a higher risk profile, Investment Week can reveal.
The Future World range was launched in 2019 with the goal of offering investors a way to invest in ESG stocks in a cost effective and risk-appropriate format.
These new Future World Multi-Index 6 and 7 funds follow the Future World structure, as multi-asset funds that use building blocks, such as the index funds that track the returns of Solactive L&G ESG Global Market index, as well as other index funds with ESG enhancements from LGIM.
James Crossley, head of UK retail sales at LGIM, said that the demand for sustainable-ESG focused products was "growing rapidly" and that these new offerings would "provide a comprehensive risk-adjusted range of funds in an accessible format for advisers and their clients to invest with a sustainable element".
The newest funds bring the total suite up to five portfolios to choose from, and this is likely to be as many as LGIM will release for this strategy, according to Andrzej Pioch, multi-asset fund manager at LGIM.
Pioch told Investment Week that they would "stick with five".
"We were running five risk targeted, traditional multi-index funds originally since 2013, for almost a decade," he said. "And from what advisors told us that number served their needs to serve different risk appetites among their clients.
"In the future, who knows, but for now, we believe that five funds is a wide enough spectrum".
The new funds will also have a higher risk profile, offering greater equity exposure and thereby having "the most significant growth tilt", according to LGIM.
Growth stocks are often the go-to choice for ESG stock picking, given value's more ‘traditional' sectors of oil and gas, commodities and financials tend to score poorly on this metric.
But this faction of the market has been facing strong headwinds since the start of the year, with higher interest rates and inflation flattening growth stock valuations and profit. When asked about this dynamic, Pioch said this had been carefully considered and to balance out the higher risk profile the funds include allocations towards defensive and alternative investments.
Pioch added that LGIM had been mindful to keep the funds out of the "unintended traps of ESG", such as the aforementioned growth bias, but also any implicit bias towards growth or size factor, sector-specific concentration risk, or "pure ESG leader" concentration.
"If you focus too much on one aspect and sacrifice the other then how is your portfolio prepared for the regime that we are in now?
"How is the fund manager of your ESG fund thinking about recession risks? How are they protecting against inflation? All these questions are not going out the window for investors that are also interested in sustainability."
The news funds will be available for an ongoing charges figure of 0.36%, in line with the rest of the range.