Insights

While we are comfortable being long credit and neutral on government bonds for now, increasing uncertainty around stronger growth, or higher inflation, makes us cautious for the second half of the year.

Against a backdrop of solid growth and declining inflation, for much of the year so far investors have anticipated a series of US interest rate cuts, thus conforming to the perfect soft-landing narrative. It now looks as though that narrative is being challenged.

As inflation and growth dynamics vie with political risk for investor attention next year, we anticipate fresh volatility – and opportunity – in this higher-rate environment.

All defined benefit (DB) schemes still need to pay pensions as they fall due. What’s the right balance between cashflow-driven and ‘barbell’ investment approaches? And how should schemes’ strategies differ given low-dependency or buyout objectives?

How have companies’ long-term ESG scores changed over the past decade and a half? Our whitepaper answers these questions, as well as considering the next chapter of the global ESG integration story.

For how long can the developed economy withstand the pain of higher interest rates? And how will that impact the fixed income arena?

We remain cautious on near-term performance at the all-property level, given persistent upward pressure on yields, but some of this pressure has reduced as inflation has decelerated. UK real estate appears closer to the end of its re-pricing journey than in other geographies

In our CIO autumn update, teams from across LGIM assess the key implications of AI for our clients.

As the dust begins to settle following a turbulent 2022 and the recent banking crisis, we reflect on the varying dynamics of private credit markets, their differentiation and their role in investor portfolios

As the dust begins to settle following a turbulent 2022 and the recent banking crisis, we reflect on the varying dynamics of private credit markets, their differentiation and their role in investor portfolios

During the passage from winter to spring, markets have continued to be swayed by the same drama that dominated investor attention in 2022: central bankers’ high-stakes efforts to rein in inflation, without sabotaging financial stability.

We discuss how schemes can navigate a thorny investment landscape – and prepare themselves for buyout.

In their latest investment outlook, our Asset Allocation team explain why they worry that hopes of a ‘soft landing’ for the world economy may prove ephemeral – and what this means for how they are positioning.

While a recessionary backdrop may mean private credit investors stay cautious in the short term, we believe there are grounds for optimism in 2023, not least higher starting yields.

Rising interest rates have lowered future liabilities while decreasing LDI portfolio collateral levels. Here’s how schemes can seek to balance this scenario.

Index strategies can target well-defined decarbonisation pathways that may help to avoid climate risks

Looking back, private markets have experienced robust returns, with 2021 making a high point. Fast forward to this year and the six months to June 2022, and the wider economic and markets environment is barely recognisable.

A common goal of limiting global warming to well-below 2°C – and ideally 1.5°C by the end of the century as set out in the Paris Agreement – does not mean there is a common or accepted path for how to get there.

The benefits of cashflow driven investment (CDI) are slightly controversial. Some believe it is a powerful risk management strategy for DB schemes nearing their endgames, whereas others are more sceptical given that it may compromise multi-asset diversification

While consensus forecasts suggest further economic recovery in 2022, we remain prepared for bumps in the road.

Global temperatures are currently on a trajectory to increase by nearly 4°C above pre-industrial levels, which would be truly catastrophic, unless action is taken.

We continue to favour staying long equities, and are prepared to increase our exposure in a dip, as investors bask in the sunshine of a global economy in mid-cycle.

In this article, we look at the high Sharpe ratios, improvement in quality and low duration of global high yield corporate bonds and explain why we believe that this asset class could be a valuable addition to a DB pension scheme portfolio.

As the French philosopher Voltaire said, “Uncertainty is an uncomfortable position. But certainty is an absurd one.”

An update on our recent engagement activities and some key considerations for our clients.

We remain long risk assets, and are minded to increase this stance, as economic normalisation is on the horizon and policymakers remain supportive.

With over £100bn of defined contribution (DC) assets under management, Legal & General’ is the largest DC pension provider in the UK.

DB (defined benefit) pension schemes are progressing along their journey to end-game, with many becoming increasingly cashflow negative and struggling to balance competing requirements for returns and cashflow.

In 2019, LGIM ran a targeted engagement campaign focused on social, governance and transparency issues at large companies with poor ESG scores.

In this outlook, teams from across LGIM offer answers to some of the biggest questions for investors raised by COVID-19.

As activity in public credit markets has oscillated across our screens, private credit markets have been largely overlooked.

Our research into the ESG views of Boomer, Gen X and Millennial savers

In this outlook, teams from across LGIM examine the opportunities and risks with which investors are presented in this context.

The second annual results of our Climate Impact Pledge showcase the corporate leaders and laggards on climate action; we are encouraged by improvements across sectors but will continue to press companies to meet this era-defining challenge.

Our survey responses have revealed that inequality is an underlying, long-term thread weaving through many apparently shorter-term issues.

We look at whether TIPS (Treasury Inflation Protected Securities) deserve a greater role within UK defined benefit (DB) schemes’ portfolios.

Good governance is crucial to all boards, whether they oversee a FTSE 100 multinational, a multi-billion pound pension scheme or a national charity. There is no one-size-fits-all approach to how boards should be run but we have learned that there are plenty of ways to evolve and enhance effectiveness.

A future in which there is less work to be done will radically reshape the economy, with important consequences for investors – including some contrarian implications for the consumer and real-estate sectors.

Cashflow matching strategies are customised investment solutions, designed to enable clients such as pension schemes or insurance companies to meet their liabilities. We believe that emerging market fixed income has an important role to play in designing cashflow matching strategies.

Unfortunately for markets, our bearish outlook for 2018 came to pass. For 2019, the key question is how tightening financial conditions will impact heavily indebted borrowers – and whether this raises the risk of recession.

Will it become more common for DB schemes to run off without sponsor support?

The falls over the past two years in high yield and emerging market debt (‘alternative credit’) credit spreads,1 along with indications of late-cycle behaviour in the US, has led some investors to be nervous about allocating to these areas. But should pension schemes reconsider?

We turn cautious on global equities on a tactical and medium-term view, as US stocks flirt with record highs even though risks to the world economy are mounting.

We remain cautious overall as risks of the US election, trade with China, unpredictable geopolitical events and Brexit continue to smoulder.

Investors need to factor in how immigration concerns in the European Union could fuel the rise of populist parties, potentially increasing the political risk premium.

Traditional models suggest there is a very high chance equities outperform over the long term. But are they overconfident, and should long-term investors adjust their asset allocation accordingly?

"We are publicising the global corporate leaders and laggards on climate change."

Is artificial intelligence overhyped, or are we at the vanguard of a new wave of corporate productivity improvements ushered in by next-generation technology?

While the financial reforms pose risks to trading, we can take heart from the benefits of greater transparency, says Ed Wicks, Head of Trading at LGIM.

The disruptive change of the ‘shale revolution’ has forced existing producers to adapt while reducing OPEC’s pricing power. We expect further far-reaching changes to take effect in the coming years

The consequences of monetary tightening will define the 2018 investment landscape.

A lack of policy space means that central banks may have to turn to more unconventional responses when the next recession occurs.

A renewable revolution is taking place in the way we produce and consume energy and it presents an enormous opportunity for investors.

The retirement of baby boomers is having a negative impact on economic growth. This is bad news for the return on risky assets and applies downward pressure on interest rates.

Peak oil demand is a contentious topic. It is crucial for climate change, yet there are possible negative downsides such as volatile oil equity prices and corporate bond defaults.

The enthusiasm and excitement of a new technology has on many occasions captured the imagination of the supposedly hard-nosed investment community, and encouraged them to overstate its profit potential.

This paper examines how uncertainty regarding future mortality rates and life expectancy, i.e. longevity risk, affects defined benefit pension schemes.

Driven by positive demographic trends, Asia has been a critical engine of the global economy, contributing around 30% of world GDP growth since 1980.

By incorporating leverage, liability driven investment (LDI) strategies have assisted pension schemes in managing the competing capital requirements of hedging liability risk and generating returns to reduce deficits.

Global credit markets have shown remarkable resilience over the past year.

In a largely anticipated result, Emmanuel Macron has won the French presidential election.

Monetary support is being tapered despite significant risks. Pressure is building steadily and we think that recent resilience is going to be tested.