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Smoothed investments

LV= Smoothed Managed Fund range

While other funds faltered, our Smoothed Managed Funds performed exactly as intended.

Our range of multi-asset, risk-rated funds are designed to help deliver a low volatility experience to risk-sensitive clients.

The Smoothed Managed Funds are most suitable for more cautious investors with a ‘low risk’ to ‘low-medium risk’ risk profile. These are likely to be clients that are nearing, or in retirement with a decreasing capacity for loss, looking to balance growth potential with reducing risk.

During the heightened market volatility experienced in Q1 2020, our funds continued to function normally and no unexpected price adjustments were experienced by investors in the funds.

These funds are designed for long term growth, so an investment of at least five years plus.

Find out more about some great features of the range

Smoothing based on past performance, meaning fewer shocks.

Our unique smoothing process uses a 26-week average of the daily fund price to help reduce the impact of short term market volatility.

Even through the extreme volatility experienced in Q1 2020, our smoothing process continued to function as intended.

What's more, it's simple, transparent and easy to explain to your clients.

Fund management

The LV= Smoothed Managed Funds are multi-asset and risk-rated to specifically appeal to clients with a ‘very low’ to ‘low-medium’ attitude to investment risk.

They are managed to our exacting mandate by Columbia Threadneedle Investments.

In our May webinar we explored how our smoothed funds performed as intended through the extreme market volatility brought about by COVID-19.

Download the webinar slides

Chris Hudson

Good morning everyone. I think we'll start now. I know there's still, we've got a ticker on our screen and there's a number of people still joining. So we'll go with that. Welcome firstly, to the second of these webinars that we're running. I know everyone's dialling in from kind of studies, kitchens, dining rooms and spare bedrooms across the UK in these unprecedented times. All of our presenters today are social distancing and are dialling in from their homes across the country. Our technology should be fine. This is the second one of these we've run. We are looking to run another one due to demand next week. So we will just take you through. I'm Chris Hudson. I run the Sales and Distribution team at LV=. I'm just going to kind of set the scene really, for what we're going to cover off today and go through. We've obviously come to this this period of shock and enforced change.

And actually what we're talking about today is how our fund and we have a story to tell. We have a number of people who have signed up for this webinar who haven't previously looked at our fund. They've looked at other simplified smooth managed funds and low risk strategies. But as I said, we've got a story to tell. Questions have been emailed in prior to this, and the presenters will make sure that they cover off the answers to those questions as they go through.

And you have the opportunity at any point, there's a chat function on your screen. If you put any questions on there or you can email us at retirement dash marketing at LV= .com with any questions and we'll make sure that they're answered specifically after the event. This is a structured CPD session, and at the end of the session a screen will pop up for some feedback which you need to complete and then we'll make sure that you get your CPD certificate.

Just in terms of the running order today. Kirsty Wright who runs our proposition team is just going to talk about a market crash and its impact. And some of the client's suitability around our fund. Well then hand over to LV='s investment management representative Adam Ruddle. He'll talk you through how we've had we've faced into the storm. And our fund is running in conjunction with Columbia Threadneedle Investments and Matt Rees from CTI will give you the take from CTI in-house view. And then in terms of the 'which means that' section, John Grundy who works in our team will just cover the kind of 'how advisors have been looking at our fund' and where it fits the most.

And also some of the considerations that you would need to have for clients in both accumulation and decumulation. And then I will kind of summarise at the end before the survey pops up. This is a market that is no doubt dominated by a big fund. We don't need to mention it by name. It's not quite Voldemort but everyone knows who we're talking about. And I think in this sector customers who were looking for low risk investments have been surprised and shocked.

So we're going to obviously tell you today about how our fund has performed. We're going to tell you actually how the outcomes for customers have been a lot better. So there are some specific aims and objectives for the discussion for CPD, there flashed up on the screen with you. I know we can all read so I'm just not going to take you through them. We will make sure when we come back at the end of it, we reinforce that and we'll talk you through that. So without further ado, I'm going to hand over to Kirsty Wright to start the main body of our session today, thanks Kirsty.

Kirsty Wright

Thanks Chris, so during the webinar today I'll be starting by talking through the current market and how smooth funds are performing. But before we get into that main content, I just wanted to take some time to explain the key purpose of the LV= smooth managed fund proposition, as I'm aware that some of you that are dialled in today probably are not that familiar with the proposition. So our funds are designed specifically for customers who value investment advice that steers them into fund solutions that have lower volatility.

These customers are uncomfortable with investment volatility and are perhaps more prone to making knee jerk reactions in response to short term fluctuations. Those reactions unlikely to be in their best long term interest. For these customers, it's not just about finding solutions that reduce the impact that short term market fluctuations can have on their money. It's also very much about reducing the emotional worry for them, with investment solutions that deliver value through smooth performance and a good investment return track record in the medium to long term.

For those customers that are uneasy about accepting losses, it can be of particular importance where they're in the crucial years on the approach to or in retirement, where they are more likely to have a decreasing capacity for loss and need to mitigate against such losses as far as is possible.

With these customers in mind that we've designed our smooth managed funds range. A range that's available through our Bond Pension and ISA wrappers. It provides the choice of cautious, balanced and growth fund options that fit within risk profile 3, 4 and 5 with distribution technology and Defaqto. It introduces our unique smoothing mechanism, that looks back over six months and with a track record of performing. And it gives optional access to guarantees for those customers who are looking to protect against any loss of capital. The optional guarantees do vary from product to product. So if you need any more information on those please do let us know.

Hopefully on this webinar we can help demonstrate why we think this smooth managed funds range is a compelling option for advisors to consider. And one that is probably of increased relevance in the aftermath of customers experiencing significant volatility in their fund's value, for the first time or the first time in several years.

In summary, they're funds designed for low and medium risk clients particularly concerned about defending against investment loss, as well as attractive rates of return. Our Smooth Managed Funds are suitable for clients consolidating and accumulating funds in the approach to retirement. as well as for those clients starting to take an income in retirement. So now we'll take a look at our smoothing. For those of you not totally familiar with our approach, our unique smoothing mechanism is a simple averaging, based on the past 26 weeks of daily underlying prices. So actual past performance rather than an estimate of what the future might hold.

The advantage of this smoothing approach is the impact from realised volatility. Or to put it another way unit price fluctuation. The table on this slide shows the realised volatility against the dynamic plan of risk rated portfolios, over the expected long term investment period. As realised volatility is a clear representation of the investment journey that clients experiences, it's clearly a very important measure for risk sensitive clients. The results here speak for themselves. Each of our smooth managed funds are delivering an investment journey that is almost 75 per cent less volatile, than the relevant peer dynamic planner risk profile, over five years. So you can be comfortable that you've recommended an investment solution. Where the lion's share of investment risk is off the table for your client. Resulting in a very low volatility experience. Indeed the volatility experience of these funds is significantly lower than that of the dynamic plan of risk profile. Today's portfolio mainly. Made up of low risk investments including money market. And government bonds.

So now I'd like to move on to talk to you about the impact of the Covid-19 financial crisis on our market, and how the funds are performed in these extreme market conditions. From late February it became clear that markets were in for a tough time. And during early March I'm sure some of you were beginning to wonder when the bottom would ever be reached. And indeed we still don't know if we've hit it yet. This has meant that some customers are probably now starting to realise how low risk an investor they really are. Following a few years of steady growth, memories of a downturn are somewhat dimmed. And for some investors this is a completely new and very unwelcome experience.

So in a period of genuine, and to coin a much used phrase at the moment, unprecedented market turmoil. How have our Smooth Managed Funds fared? Well I'm pleased to say they're doing exactly what they are designed to do. They're protecting our investors over the long term, and the worst short term volatility and downside risk. They provided much needed comfort for investors, when they have many other things to be worried about.

The graphs we're showing here show the worst the markets have seen and how our Smooth Managed Funds have operated over the same period. I hope you'll agree that's quite a compelling picture for a low risk client. A unique approach to smoothing which looks back at performance over the preceding six months, rather than trying to predict the future has now been tested on at least two significant occasions. The financial crisis of 2008 to 2009, and the current and ongoing Covid-19 situation. Over both events, it's performed exactly as intended. And indeed, it’s the only smoothed fund in the market to be severely tested without breaking.

Explaining to a client in drawdown why their low cost passive investment or their low risk smooth investments fell 13 per cent on a single day, just before they were due to take an annual income can't be a comfortable conversation to have. And at a time when that customer is facing uncertainty and anxiety in all aspects of their lives, it's yet another significant worry.

We believe our approach to smoothing and the tolerances we set, deliver a robust mechanism designed to protect against market upheaval. And upheaval doesn't come much heavier than the current situation. It continues to provide a no surprises investment journey. So customers can focus on the really important matters they're facing, safe in the knowledge that their investments are not facing a rollercoaster ride. I'm now going to introduce Adam Ruddle. Adam is a senior investment manager here at LV=. And he's going to talk to you through our investment performance, how this compares with our peers and what the outlook is going forward. So assuming the technology is all holding up, we'll continue our tour of the country and hopefully over to sunny South Wales and Adam. How are things with you this morning Adam?

Thanks Kirsty. Good, good thank you. I think the IT seems to be doing its job which is good. Thanks very much.

Adam Ruddle

Well hello. As Kirsty said my name is Adam Ruddle and I head up the investment group at LV=. And really what an extraordinary time we are in.

It's great that we're able to broadcast this webinar to you and thank you so much for your interest and engagement with us at this time. The team as Chris mentioned has been promptly sending through some of your questions, and for those related to investments or performance. I'll try to answer those as I go along. Now if I haven't done so sufficiently or if my response has prompted more questions, please do get in to get in touch and we'll get back to you as quickly as we can with the answers. We do really value your engagement with us at this time.

So this was a tough quarter for the markets. We now know it was the worst quarter since 1987. Even worse than what we experienced during the global financial crisis. And Matt I'm sure we'll cover this more comprehensively shortly. Over such a volatile quarter as Kirsty set out, our smoothing mechanism did its job. And performance wise, we can see in the table just how we did. So this table sets out the annualised smooth returns for our flexible guarantee bond. And our pension products, flexible guarantee funds. The underlying funds are the same, the difference is primarily due to tax. So the flexible guarantee funds being tax exempt of course. Now these are a good set of returns. They have fallen since the highs of February. We're certainly not immune to market turmoil. But these returns are still buoyant. And given other products available for the same risk profiles, they are almost exclusively positive. We are particularly proud of our long term performance. Annualised performance over 10 years was 5.15 per cent, in our cautious fund. And 6.37 per cent in our growth fund. Now these are annualised, so really that's a fund growth of over 85 per cent, over the 10 years for the growth fund. That is a tremendous return despite the worst quarter since 1997. Onto the next slide please.

A quote from Gordon Ramsay and like him or loathe him, I think our celebrity chef has hit the nail on the head. I doubt he was talking about smoothing mechanisms, but he absolutely could have been. Another culinary expression. If you can't stand the heat, get out of the kitchen. And we certainly saw our peers in the marketplace exit, suspend, break their smoothing mechanisms. And although tested hard, our smoothing didn't fail it, it didn't falter, it didn't break, it was there when our customers needed it the most.

Let's have a quick look at an example. So this slide sets out the journey excluding charges for five customers raring to go with 100000 pounds worth of investments each. Other than the last customer who decides to wait for product C to launch their offering in February 2019, everyone else invests on the last working day at the end of 2018. They want something that has about 50 per cent in equities. So a bit like our balanced fund, and all of these products are directly comparable. The chart sets out the value of the investments for the smooth managed fund product and our nearest peer. From the chart you may be surprised to see, though you shouldn't be that smooth managed fund outperformed product B from the start.

Actually only the investment in the ABI 40 to 85 per cent sector did better early on. And that's because the sector strongly benefited from high equity content over 2019. Then we get to February and March 2020. The period where it really matters for customers who don't want to worry about market crises or shocks. Well at the end of March, this product is the sole investment with a positive return. A value of over 10000 more than the next best performer.

Onto the next slide please. Well thank you again for your many questions submitted in advance and by far one of the most common questions we've had is how did you do it? Well firstly we have a strong and well-established relationship with our asset managers, Columbia Threadneedle Investments. I'm not just saying that because they're on the call as well. They've delivered strong performance against our industry benchmarks. On these two charts I've picked out strong performing funds. Now we had a great year in 2019.

It helped us shore up our strength and our market performance to deal with crises as they appear. If we look at the emerging market equities, I think that's the fifth along on chart two. This fund has really been one of the runaway success stories of last year. CTI's fund doubled the return from the MSCI Emerging Market Index. This is the index that we benchmark the fund against. And this put the fund amongst the best in the world, if not the best global emerging market equity fund out there for 2019.

Now, much harder to do over this quarter and yet in Chart 3, here are three strong examples of alpha. So alpha is an investment term that means relative outperformance against benchmarks. European equities, U.S. equities and Japanese equities. Now these funds were hurt by the market selloff but not as badly as the indices we would compare them to. It wasn't just these three funds either. CTI generated alpha, a positive relative return on 9 out of 13 strategies or funds that were used for the smooth managed funds range of products. So performance that beats the market from our asset manager in good times and importantly in bad times too, what else?

Well on the next slide, we set out that in 2019 we significantly altered our investment strategy, changing our strategic asset allocation. Some of this was in response to our poorer performance in 2018 than we would have liked. We were quite strongly concentrated in UK holdings and we wanted to change that. The main aim of SAA review was to optimise return, but keep investment risk broadly unchanged. Now we didn't see coronavirus coming. We certainly could not have anticipated the speed at which it infected global markets. But we did think that some sort of market crisis or selloff would emerge over our SAA review window.

We had been in a bull market for a long time, and there were some signs that we were reaching the end of this particular stage of our investment cycle. So within the SAA we wanted to create resilience to any market disturbance or correction that could emerge. And so our strategy was to diversify at an asset class level and geographically reducing our concentration of UK holdings. To help with this, we introduced four new asset classes and divested out of heavy UK asset classes.

So UK equity, gilts, UK corporate bonds and UK property. We got some great recognition across the industry for this winning two awards off the back of this work. In particular we won the coveted Investment strategy of the year from the industry body Insurance Asset Management. So how did our new SAA work out for us over 2020? Well on the next slide the chart 4 sets out the performance of CTI's funds across our main asset classes.

I've rebased all of the funds to 100 so we can easily compare how they've done over the quarter. Most funds as you can see have come in below 100, so mostly pretty negative where we've lost value but that's no surprise. There are two key things to take from this chart. Firstly the dotted lines, that denote new asset classes introduced as part of the 2019 SAA review. Now if we rank the performance of all of these funds you can see that our four new asset classes are in the top half. And treasuries and overseas corporate bonds are our two best performing asset classes.

So we went into the right asset classes to give us resilience in a time of crisis and sustain our smoothing mechanism. Secondly note the heavy amber line that you can see at the bottom of the chart. That's UK equities and, in line with the index, it was the worst performing region. Now there are many reasons for this. Firstly the UK investment scene is dominated by oil and mining companies as well as banks, and these sectors were hit hard by the Coronavirus. And secondly some of the companies that have thrived are overseas companies the likes of Netflix, Amazon, Apple, Microsoft, Ten Cent, Alibaba and many others.

But the UK was our worst performing region, and as part of the SAA we massively reduced our allocation to UK equity. We instead spread this equity allocation to CTI's flagship dynamic Real Return Fund, to emerging markets, to Japan, US etc. The best of both worlds. We introduced the right new asset classes and reduced our allocation to the lowest performing asset class. In terms of the crisis so far and importantly what might come, we think we're in a relatively good place.

So what might this mean if you're thinking about investing in the smooth managed fund range of products? Well let's have a look at some scenarios on the next slide.

So I've assumed an investment in May into our Bond, in the Balance Fund. Under some common alphabet recovery scenarios that have been suggested by various analysts and economists. So firstly the darker green colour, a V shaped recovery, where markets recover pretty linearly back to where they were. Almost in the same way that they fell in the first place. While in this scenario despite the last few days we've seen some of this recovery already. So this is our lowest return at 5.3 per cent.

Still a pretty strong return. The lighter green colour, shows a U shaped recovery which assumes a recovery over the next 12 months. Well performance is actually stronger at 6.5 per cent. And then the dreaded W where we haven't seen the bottom of this crisis yet and what we're actually seeing now is a ‘dead cat bounce’. Some markets fall further before steadily recovering over the next 12 months. Now this scenario, even if you don't buy in at the bottom is actually great news for you. A staggering return of 10.3 per cent.

Now there are two other common questions that we've had and it might be helpful to answer them by looking at the slide. The first question is, after the PruFund snapped surely it's all upside now and surely it's better to put your investments with them? Well firstly I think if you're currently invested in that fund, that snap had to be painful. And you can only cling onto the hope that it will be reversed at some point. Secondly it appears correct that EGR's are unchanged, so new business can expect 4.2 per cent if you look at their comparable product. But your one year return assuming there are no further unexpected, unsettling or unwelcome unit price adjustments will be 4.2 per cent.

Well look at these three scenarios. In all three of them, your one year return with us is higher. The second question that we've had through is, surely your smoothing mechanism means that performance will drift down over time? Why should I place my client’s money with you knowing that smoothing will go down? Well that's just not right. When you buy a product with us you don't go straight to the smooth value. So whether it goes down or not over the first six months, you and your investments are unaffected. Your performance is directly related to what happens whilst you are invested with us, not what happened beforehand.

So in these scenarios you can clearly see from the charts, other than in the W scenario where markets fall once you're at your invested. You don't get a downward drift or anything like that. So let me be clear, you don't need to worry about what happened before you invested with us.

Well that's all I wanted to say. And now to take you through what's been going on in the markets, trying to make sense of it and certainly what might be coming our way, is Matt Rees. One of our talented investment managers at Columbia Threadneedle Investments. Matt over to you.

Matt Rees – Columbia Threadneedle Investments

Thank you very much Adam and good morning to you Adam. Good morning everyone on the call. My name is Matthew Rees. I'm a portfolio manager in our asset allocation team. I am the deputy portfolio manager on the smooth managed funds. Normally when we are in the office Alex Lyle and I sit next to each other and we manage the exposures of these funds which your clients are invested in together. As with Adam, I have received your questions and I hope to address them throughout the next 10 minutes or so.

The first thing I’d like to touch on is our asset allocation grid. This is our outlook, how we see the landscape at the moment and what I would like to say is this is not just a table I've put together to show for the purposes of this webinar. This is absolutely core to our process and that process involves our asset allocation strategy group.

These are our Columbia Threadneedle's most senior investors. We meet once a week. They include the CIO, the Head of asset allocation, Head of rates, Head of credit. And we actively come together, Everyone debates and puts in their own scores to form this house view. And then Alex Lyle and myself aim to construct portfolios sympathetic and in line to the house view. And so as you can see from the table. at the moment we are mildly tilted towards risk.

So in the ’favour’ category on the asset allocation top row there, you can see we are positive on equities and credit currently, neutral on cash and in the disliked column you can see government bonds. We are currently disliking safer assets and we are favouring the more risk on type assets. Now clearly lockdown and the Covid-19 crisis was having a very severe impact on the economy.

Our view is though that it should be temporary and so come the second half of next year, this year rather, companies should start earning again and GDP should be growing again. However that's not to underestimate or understate the impact that has occurred. We could see U.S. non-farm payrolls this this week at around 21 million job losses.

And that would wipe out the number of job gains in the US since the Great Financial Crash similarly we've seen GDP numbers coming out and these have been greatly affected. And it was to say the immediate impact will be temporary in terms of getting back to the level of GDP that we saw in late 2019. This could take a significant number of quarters to get back to that level. So we are thinking as an investment house in terms of economic recovery is similar levels of output. It could take in the region of over a year, maybe two.

So thinking in terms of the popular L, U or V terminology, what we're thinking is U or L currently. In terms of policy support, this has been great. I'm sure you're all aware we've seen great fiscal stimulus as well as monetary policy stimulus as well. And so the authority's efforts to provide a bridge over a lockdown period has been great.

So while we which should provide a good boost to what sort of risk assets in the sense of a providing or easing the liquidity that we saw a month or so ago. And that's led us to favouring - ities and credit. Specifically we like IG credit as it adds to the higher quality end. And also we like high quality equities, and you can see how all movements on this asset allocation grade have reflected that view.

And so over the last quarter or so we have upgraded US equities to ‘favour’, and we have downgraded Japan from favour to neutral. Now Japan is a very cyclical economy or market. And so in this current environment, we don't tend to favour that area. Also Japan performed extremely well over a two week period, greatly outperforming global equities. And so it's a tactical reduction to neutral for us, because there are positives we like about Japan over long term such as the economic reforms that are still ongoing about increasing returns to shareholders. In the US, we upgraded on the strength of the global high quality companies such as Google, Netflix, Amazon that we think can still thrive in this current environment.

I already mentioned IG, how there's a technical boost from policy - the QE that has been announced in many areas not just the US. Europe and the UK, has it and certainly eased liquidity and also helping greatly in the functioning of the market. And we raised it once to ‘favour’, and then we raised IG again to ‘strongly favour’, because spread levels over government bonds still remain at very attractive levels.

Now there is one extra change we have made to this grid, which was last week and it is not shown on the slides because the production of the slides predated our asset allocation meeting. And we have actually downgraded the UK equities from ‘favour’ to ‘neutral’. Now this is largely due to the output of our economic research group. The view is that UK could take longer to recover, relatively, versus other regions such as Europe, the US and Asia. So we currently remain favouring the US, favouring Asia and neutral for the other equity regions.

Just one more word on our outlook of the view of the world. The fact that we dislike government bonds. Well governments have performed magnificently so far, specifically the US Treasuries. But with yields at such low levels now and monetary policy priced to be at zero for the next five years or unchanged for the next five years, there's not a great amount of juice left the front end of government bonds. It's only arguably the 10 years and longer of U.S. treasuries that actually have space to rally with pricing as it currently is in, unless places like the UK and US embrace negative interest rate policy which we do not think can, or will, happen. So we remain, we are disliking government bonds but liking the spread over government you can receive from corporate IG at the moment.

One thing I should also add. Our downgrade of the UK does dovetail nicely. So Adam mentioned earlier about the reduction of UK equities in the SAA. Now that reduction was very well timed throughout the last year because the UK has performed rather poorly over last six months or so. Brexit was certainly a hangover. And so certainly the changes made last year to the SAA as Adam highlighted were very strong. Now it's been a very volatile environment certainly.

If we can move on to the next slide please, I’ll show here a couple of charts which are market based volatility indices. Now the left hand chart is a short term chart showing equity volatility and currency volatility between the major currencies and the right hand chart is a longer term equity policy chart. It's the same series as in the left hand side, but just expressed over a longer time frame.

Now the point here is you can see how sharply in the short term chart, both of these metrics spiked up greatly and you will see in the headlines the S&P sold off 20 per cent or greater in the U.S, and we've since recovered about half of that retrenchment. Whereas in some other markets like the UK we were yet to recover as much. On the right hand side you can see this frames that over the long term, the spike. The level that the VIX index reached in the early part of this year, is the highest the VIX has reached in 30 years - the lifetime of of its index, and greater than what we saw during the .com bubble and also in the GFC. So I think Kirsty mentioned earlier these are clearly unprecedented times, levels never before seen and in volatility indices and markets have been lost. Equity markets have been functioning pretty well throughout, and we did certainly see some liquidity problems in credit markets.

So what else has been going on? The next slide shows how correlations have moved as well. And so on the top panel, this is global equity correlations to a number of risky or bond markets. So I have up there European IG, European high yield, US IG and U.S. high yield. And the big point from that top panel is that all of those correlations move as one. So as risk started to come off, as the crisis developed as what happens in many crises, all correlations go to one, all risk assets sell off together, move in lockstep and there's very few places to hide.

So what did we do? Well the point about the smooth managed funds is, along with the smoothing mechanism we have the SAA which Adam ran through earlier. Well that keeps the client invested to some extent, subject to a risk tolerance, through the whole period. So the fund will always have an allocation to equities and to credit during the very bottoming and the next subsequent five days, which is just so important when you talk about total returns because a snapback you see after the day at the bottom. If you're not invested then can be very hard to get back and can take a long time.

So that's point one, and then point two is that we stick to our process. So we're not new to this game. At Columbia Threadneedle, our mandate is to tactically asset allocate around the SAA that’s provided to us by LV=. And we have seen crises before. Our asset allocation process has been running for greater than 20 years now, and in our view of that was that it was a temporary effect that should materialise from the fallout. We didn't knee jerk react in terms of selling out. We didn't sell at the bottom. We took an opportunity to add some equities after the initial shock had occurred. So actually we were buying at pretty good market levels, and we remain of the view that risk should perform okay over the coming months which is why I said we currently favour IG credit and equities.

Now Adam mentioned how well some of our four funds had performed. Now if you go into the next slide please. Here I talk about a house view which are funds tend to operate on a quality growth bias. And this is where we look for strong companies that can compound returns in good times and perform well in the bad. In long the growth expansion we've seen since the GFC, it has been a low growth environment. This quality growth angle has performed very well. It also tends to outperform in bear markets, and in a disruptive world, mean reversion may not work as it does in value strategies which are not going to outperform if your businesses have been really struggling in the downturn.

So this is a big reason why our sub equity funds have outperformed over the last decade, as well as over last month and in 2019 as well. As you can see on the chart on the right hand side, this is a factor in performance between February and March 2020. And you can see how profitability and growth have both been positive there. Whereas value and small cap and earnings yield to the right are on the negative side.

So if I now move on to our outlook. I'll just finish there. Now as I've said we believe Covid-19 to have a temporary, but albeit significant effect on economic growth. We like quality equities and investment grade currently. The Big ease should be a support and has been of great benefit to the markets already. We think the V shaped recovery is probably unlikely now. We are hopeful of a U shaped recovery. Some areas such as the U.K. may maybe more L shaped, we are thinking. But in the second half of this year, even though the second quarter will be tough, but by Q3 we will start to see economic growth and growth in company earnings return.

There are a few risks out there as always. Clearly a second wave, a big double dip or W shape, or lockdown ending too soon could see and risk, markets suffering for a second time. And also there is also other point. We do have the U.S. election later this year, which markets always focus on. Other elections or political movements could be great after this, as all politicians will be out there saying look how well I managed the Covid-19 and the lockdown. So we are in unprecedented times, there are risks out there but we are mildly positive on growth, specifically credit and more high quality credit and high quality equities. That's all I wanted to run through at the moment. Thank you very much for your time this morning. If you have any questions I'll be glad to field them via the LV= team. I would like to pass on to Jon Grundy.

Jon Grundy

Thank you. Good morning everybody. My name is Jon Grundy. As you can see on the screen now, I'm a partnership development manager here at LV=. I've got the opportunity now for the next 10 minutes or so to talk to you about how and why these funds are suitable for your clients today, and how advisors are considering them as part of their solution for recommendations for clients.

Firstly before I do that, I'd just like to recap and sort of pull everything that you've heard together so far, and combine all of the elements into what we at LV= like to describe and name the performance triangle. You can see the triangle on the screen in front of you, and as you can see the clients, like in all of your advisory businesses is at the heart of everything that we do. But actually we do feel that and I feel so strongly about this, that the performance of these funds is not in any one specific area. It's the sum of the three parts that are greater than any one individual area.

So it's a strong, steady investment performance over the medium to long term, that is part of this triangle and it is a medium to long term investment, five years plus. And hopefully we've demonstrated and you've seen some numbers today that confirm that and give you confidence in that medium to long term performance. The smoothing mechanism which is unique as Kirsty described at the bottom left, talks about and gives us the low volatility investor experience which is crucial and that in turn gives the clients the effective downside protection in their investments with our portfolio of funds.

I think it's probably just worth mentioning that we did pull that together. What does that mean, what sort of client are we looking at? And again Kirsty touched on this right at the beginning, but we look at those clients who want to sleep easy at night. They want peace of mind. Their investments are doing exactly as they're designed to do. The analogy I've used before and I'm sure this might resonate with many of you on the call is, is those clients that might get spooked by the News at Ten headlines saying that the markets have crashed through the floor, and then be on the phone to you pretty much first thing in the morning or the next couple of days after having a few sleepless nights.

It's for those clients that want to sleep easy at night. Kirsty also mentioned – as you can see in the top right to the screen about the risk rating of the funds and you can see that are three, four and five risk rated by Dynamic Planner and Defacto. I think I'd just like to add to that you know we've had volatile markets, crazy times over the last six, eight weeks or so, but volatility actually returned to the market around two and a half years ago. And our risk ratings have maintained the relevant profiles through all of those trading conditions, and not all of our competitors can say the same.

So we're quite proud of that. Again just to summarise on this before I talk about how the advisors are using it, is that performance triangle - what that ensures is that the smoothing mechanism provides no cliff edge falls for clients. So they can be confident that that their funds are doing exactly as they were designed to at the time of the advice originally.

So if I can move onto next slide please. Accumulation in terms of pension planning obviously is where advisors consider for funds for many different reasons. But what this slide shows is it is a recent investment journey from January 2019 up until the 21st of April which was when we prepared some of these sites for compliance. And what it says if you see it and the funds on there against our funds are A, B and C and our competitors’ funds are funds D, E and F. And what I think this slide demonstrates similar to something you saw earlier is that we continue to deliver that smooth investment journey for our customers.

Our competitors haven't. I mean just to bring that into some context I'm sure you can all read that, but you know that as hundred thousand pound investment or portfolio worth one hundred thousand pounds at the beginning of January 2019, come the crash a few weeks ago and the sudden market adjustments by some of our competitors. There's a difference overnight to somewhere between eight and ten thousand pounds for that client. It's quite significant. Our funds however have given that downside protection that the smoothing mechanism delivers. It's because of the reasons that you're looking on the slide that many of our advisors for accumulation regardless of the time horizon, if the if the client profile fits, if the risk rating fits, that they're used to the accumulation of managed funds and accumulation for all timeframes.

But something that we have seen specifically increase over the last 18 months, two years or so is conversations with our advisors or clients who are approaching five to six years from their target date retirement date. So whatever investment strategy they might have in place, they are thinking of changing things as they get closer to that retirement date and these funds really come into their own for accumulation in that respect, because they protect it from any sudden falls that perhaps may happen, without the time to recover. So as clients are getting closer to that retirement age, consideration for our Smooth Managed Funds is where a lot of conversations are happening with our advisors and our sales teams.

In terms of other ways that IFAs are considering us for their accumulation is if cost is a driver for the clients, then combining our smooth managed funds with the likes of the Vanguard LifeStrategy or the LGIM multi index funds is something that we see a lot of. And something I've personally seen a lot of over the last year or so is for those advisors that want to continue to use the Pru. They can do via our SIPP. We can access it through a TIP via our pension wrapper. So for those that want to use that the Pru TIP and continue to use us, you can have those side by side in the same pension wrapper. Which obviously helps with a little bit of diversification, but also if there are some concerns about concentration risks, I know there are a lot of firms out there looking at that and then that can help. But generally speaking in terms of accumulation if the smoothing mechanism that provides the journey that you can see that with no cliff edge fall, no surprises around the corner for your clients.

Next slide please. Thank you. So moving on to decumulation. What we're talking about here quite obviously is drawdown. I am sure that we find the same as you - that lots of clients when they get into drawdown are more concerned about protecting the fund that they've accumulated rather than chasing investment returns. And again this is where the downside protection, the smoothing mechanism, really comes into its own for protection against the dreaded sequential risk returns,. And what we're looking at on the graph here is Quarter one to date or to the 16th of April to be precise, again when we submitted the site for compliance.

What you can see from our funds here which are A,B,C at the top against on this occasion some ABI sector average funds with the same risk profile, is that all the funds were bubbling along quite similarly for January, February and March. Then the virus came and then the crash came and things changed.

Well they didn't for us. As you can see our funds therefore for A, B, and C continue to perform as designed with a smoothing mechanism. And what does that give for a client who was in drawdown? It gives them the confidence that they can continue to take the same income level they have been taking up until that point. So it does protect them from that sequential risk. Compare that to somebody who by way of illustration is due to take their income from the fund at point X, just by way of an illustration. They’ve got a decision to make where either they take less income, or they cash more units to maintain their income level.

And that probably generates a bit more work and a conversation with you. But also they've got the added challenge down of requiring an increased investment performance to catch up what they've lost. So these funds really do come into their own again once again in decumulation.

But just looking at the top right hand corner, I know that many of you will be using the Dynamic Planner facility as part of your advice process. And for those that do, they recently launched their risk managed decumulation tool, and our Smooth Managed Funds are part of that proposition. So for those of you that use it then keep an eye out for that. Not all smooth managed funds are, but ours was included. Thank you. Next slide please

And this is a slide, to be fair I've probably crowbarred into the presentation a bit because it is one of my favourites but it's a scatter graph so I think really shows this strength in simplistic form, and I like simple in terms of volatility and investment performance. The place to be on this graph is top left where the volatility is its lowest and the investment returns are at their highest. And what you can quite easily see - and why I like as a visual, is that are funds A, B and C are sitting pretty and in the top left area. Just more validation about the combination of the volatility management and the investment performance for our funds.

Next slide please. So I'm just going to summarise my little area and bring things together, but after I run through the summary slide there's just a couple of thoughts I'd like to leave you with and some rhetorical questions if I may. But just to just to summarise bringing the three sessions together so far. It’s a simple transparent smoothing mechanism that's based on the actual performance of the previous 26 weeks.

It's easy to understand and you can give your client confidence that there are no surprises waiting around the corner in terms of sudden cliff edge falls for example. Suitable for the accumulation and decumulation. The performance triangle which is the investment performance, the volatility management and the downside protection provide that less anxious more comfortable investment journey that these clients crave. Kirsty mentioned that guarantees are available on the pension and the bond actually, and these can be added or removed at any time. That doesn't have to be a decision made at outset that you need to live with for the duration of the policy. And I know that some advisors and clients if they want that extra layer of security and that extra comfort blanket they do use it tactically in terms of locking in some investment gains and then maybe removing it further on down the road.

One thing just to point out is that you only pay for the guarantee for the time that you're using it.

Finally all three funds are available in the pension, the bond, and the ISA so hopefully you found that useful and for those of you that haven't used this or considered us before then there's sufficient information and sufficient detail for it to stimulate some interest. For those of you that do, thank you ever so much for your support and hopefully that you found the last hour or so a benefit, and also helps validate the advice that you've given to the clients and continue to do so with increased confidence.

But before I leave you with some rhetorical questions and this is from a commercial basis. I will caveat it by saying obviously the first and foremost that the correct customer outcome is the most important thing in any advice process.

But just to say that the smoothing mechanism that provides your clients from any sudden falls in the marketplace and sharp falls, is also the same smoothing mechanism that protects your ongoing renewal income. Just something to think about. And the last words for me are some rhetorical questions if I if I can. Do you have clients that are not confident or comfortable investing? Do you have clients that would likely contact you immediately should the value of their investments fall sharply? The News At Ten scenario that I mentioned. Do you have clients that are more concerned about possible losses than probable gains? Do you have clients that are approaching retirement within the next five years or so? If the answer to any of those and similar types of question is yes and then we'd love to have a conversation with you to see how our proposition can complement your advice process. so that's it for me. Thank you ever so much for listening.

Chris Hudson

That's great. Thanks so much Jon. And thank you to all of the presenters today.

Just reminder of the objectives for today is considering the types of clients who might be suited to smoothed managed investment funds I hope we've demonstrated that to you actually how the funds have fared during the recent market turbulence is probably something that some of you has been a bit of a surprise if you're not used to using us.

So I think we've shown that in spades today. How we consider volatility performance and downside risk and how they impact your clients. And we've given you a highlight from our LV= investment team and thanks to Adam for that. And also Colombia Threadneedle. Thanks to Matt for that as well. I really hope we have been able to demonstrate to you how the funds can form part of the robust accumulation income strategy but also in the decumulation phase. There's a lot to take in I think. Just from previous feedback. That we've aim to deliver the right level of content and detail. For you to feel confident that we're a firm hold. If you've advised your clients previously to invest with us. And a strong buy for those who are dissatisfied with their current lower risk funds and lower risk smooth managed options.

Straight after this finishes a survey feedback form will pop up. If you could make sure that you can complete that then we'll get your CPD certificate across to you. Also a copy of this presentation. So there are some quite powerful graphs in there we'd like you to have a look at. Any questions that you've put through on the chat or you've sent through to our team at [email protected] We'll pick up with you individually and we'll include those within any FAQs if it's appropriate.

And I guess the last thought I'd like to leave you with this. If you have used the LV= Smooth Managed Fund for your clients up until now, this is absolutely validated your advice over this period. And if you haven't and you've used other lower risk strategies, or you've used other smooth managed providers, I really do hope that today's encourage you to have a further look actually at what we've got. It has felt a bit like a best kept secret but I think we've broken cover on that now. So I hope that you found it useful today.

Thank you for your time. And we will get everything out to you and we'll make sure that you've got the relevant information to consider this further. So thanks again. Thanks to the presenters and enjoy the rest of your day.

Introducing our Smoothed Managed Funds Trustee Investment Plan (LV= TIP)

LV TIP Adviser Guide

The LV= TIP increases the availability of our smoothed funds for pension investors, allowing clients to access our three unique funds via other providers' SIPPs and SSASs. The funds help minimise the impact of market shocks and work effectively as a standalone investment or as part of a larger portfolio.

Our Smoothed Managed Funds are accessible through four product options



The Smoothed Managed Funds Trustee Investment Plan (LV= TIP) provides access to our smoothed funds as part of your client's SIPP or SSAS.


Flexible Guarantee Bond

Our Flexible Guarantee Bond offers potential for capital growth with ongoing flexibility and guarantee options.



Our ISA smoothed funds are accessible through our stocks and shares ISA.


Flexible Guarantee Funds

Our Flexible Guarantee Funds are accessible as a pension investment through the LV= Flexible Transitions Account.

*The LV= ISA and LV= TIP are non-profit investments and do not participate in profits made from wider business risks and opportunities. There will therefore be no mutual bonus payable on the plans.

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Optional guarantees are also available to further reduce the risk to capital

Guarantee options, availability and terms differ - please see product information for details

Important Information

  1. Clients investments may go down as well as up and they could get back less than invested.
  2. The funds within our Smoothed Managed Funds range are designed to provide steady long term growth for a period of at least five years.
  3. Our smoothing process doesn’t mean investments won’t drop in value. Smoothing will not prevent losses in longer term falling markets.
  4. In exceptional market conditions (when the underlying price is 80% or less of the averaged or ‘smoothed’ price) the fund will be
    valued on the underlying price. For LV= TIP the fund may be valued on the daily gradual averaged price. We also reserve the right to move to the underlying or gradual averaged prices at other times.
  5. If clients select a guarantee (where a guarantee option is available) they will need to be aware of our associated terms and

Member benefits

Every client who is covered by one of our personal or business protection and retirement products automatically becomes a member of LV=. This means they are entitled to a range of added benefits and support.

Working with LV=

We’ve been providing financial stability to our customers since 1843 as Liverpool Victoria, and we’re fully committed to the intermediary market. By working with us, you will get the support you can expect from a respected provider.

LV= Insights

We know your time is precious, that’s why we’ll help you keep on top of the latest industry news and regulations affecting your business.

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Contact us

Have a query? Speak to your usual Retirement Consultant or contact our dedicated Retirement team on 0800 032 2990

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Liverpool Victoria Financial Services Limited, registered in England with registration number 12383237. County Gates, Bournemouth, BH1 2NF, UK