Emma Wall: Hello, and welcome to the Morningstar series 'Why Should I Invest with you?' I am Emma Wall and here with me today is Justin Onuekwusi, Manager of the Multi Asset Funds for Legal & General. Hi, Justin.
Justin Onuekwusi: Hi.
Wall: So, I know your funds are very thematic driven, very macro driven. What exactly is your outlook for the global economy going forward?
Onuekwusi: So, firstly, we take a one to five-year view in terms of time horizon. So, in 2015 our outlook is that global growth will be very strong, so stronger than expected and this is really driven by the U.S. where we believe that compared to consensus our economic growth forecasts are much more positive. What does this mean for asset classes? It means we are overweight risk assets, so a positive on equities, typically negative on bonds and positive on U.K. property.
Wall: Looking at the U.S., that's quite a contrarian view because a lot of people are saying that that actually the U.S. is looking like it's fully valued?
Onuekwusi: In terms of U.S. equities, I agree; but in terms of the U.S. economy, we think that the U.S. economy is going to grow much more than expected really driven by an increase in CapEx, fall in unemployment. I think you'll start to see a tightening of the labor market. Our view is that globally, particularly in the U.K. and the U.S. deflation has been defeated. So where we were kind of really worried about deflation on both sides of the Atlantic we now seeing a trough and you're going to start to see inflationary pressures, but you're going to see growth as well.
Wall: How does that trickle down into how you run the fund then? You say that you think that U.S. economy is very strong, but the U.S. equities are overvalued. So where does that lead you then as a fund manager?
Onuekwusi: So, a positive on equities and we think the U.S. is the global growth engine of the world and it will pull growth throughout the rest of the world. In terms of positioning within the equity market, we are very positive on emerging markets. We believe that monetary policy flexibility that they have is much better than developed markets. So, for example, if we are wrong and there is a global shock, we still can reduce rates. The demographics in emerging markets are very strong, growing middle class, growing urbanization and also, from a valuation perspective now, emerging market equities are looking more attractive than developed market equities.
Wall: What about the Europe then, because Europe has had a bit of a tough time. There have been some attempts to get it going again. They've really had sort of muted response, haven't they?
Onuekwusi: Yes, I've been saying for a long time to anybody that will listen that Europe is definitely the elephant in the room. Deflation is – or low inflation is a serious problem in Europe. And as we know, the ECB tend to only react when they really have to. Therefore, we think that inflation remains at such a low levels in Europe you will see an ECB response. I think something that's very interesting actually in 2015 is the difference in policy from the Bank of England and the Fed versus the Bank of Japan and the ECB. So whilst you're going to see the Fed and the Bank of England look to start increasing rates in 2015, it's quite clear that Bank of Japan and the ECB are going to have to continue to ease their monetary policy.
Wall: You are a multi-asset fund manager. Although you said that you're bullish on equities, where do you stand on bonds? Presumably they have to make up a part of your portfolio in order to counter risk?
Onuekwusi: It's a great question. So, in terms of defensive and cautious investors who have typically relied on guilds, we think they are going to have to do really two things. First of all, they are going to have to diversify away from the guild market into other safe government bonds. We've learned since 2008 that even safe countries can be downgraded. France has been downgraded. The U.K. has been downgraded. Even the U.S., the global engine room of economic growth, has been downgraded. So, it's important to diversify. Secondly, I think you got to be active in terms of asset allocation. Don't just invest in guilds, don't just invest in corporate bonds; emerging market debt, high yield, short-duration debt and be active across those different instruments.
Wall: Of course, it's easy for you to say that. For the retail investor, it's best to outsource that sort of asset allocation. Multi-asset becoming increasingly popular with advisors and investors were doing just that for taking the risk out of their hands?
Onuekwusi: Yes. I think we've seen – we've seen huge growth in multi-asset funds and that's really been driven by I think the increasing landscape of risk profiling. Risk profilers are everywhere now. Every manager uses a risk profiler and the managers that have been able to target those risk profiles appropriately and deliver a solution which is suitable, both now but also on an ongoing basis have been the winners.
Wall: Justin, thank you very much.
Onuekwusi: Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
