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Smoothing explained

Smoothing: simple, transparent and easy to explain to your clients

Our smoothing mechanism takes the average of a fund’s daily price over the past 26 weeks to produce a ‘smoothed’ averaged fund price. The smoothing mechanism is applied separately to each individual contribution paid. Here’s how it works:

The first 26 weeks
When your client initially invests, their fund is valued at the underlying price for the first 26 weeks.
After the first 26 weeks
The smoothing mechanism kicks in and a client’s fund is valued at the average daily price of the previous 26 weeks.

This process is simple and transparent. It’s easy to understand and, more importantly, is easy to explain to clients because it’s based on what’s already happened rather than what might happen in the future.

The impact of the smoothing mechanism means that the effect of dramatic stock market fluctuation is ironed out, substantially reducing volatility. Clients do not therefore see sudden changes in the value of their fund.

Because of the smoothing, at times of sudden and dramatic market growth, fund growth will be less; however, if markets fall quickly, the smoothing mechanism will help to cushion the dramatic impact of the fall.

Graph showing the ups and downs of the stock market being smoothed over time

This chart uses simulated investment performance to illustrate the impact of the smoothing mechanism.

It’s important to note that in exceptional market conditions (when the underlying price is 80% of the averaged price) the fund will be valued on the underlying price and we also reserve the right to do this at other times.

What to expect as a result of Covid-19

During the market volatility triggered by Covid-19 earlier this year, our funds continued to function normally and no unexpected price adjustments were experienced by investors in the funds.

What happens next?

  • Clients who recently invested or are about to invest in our smoothed funds will experience funds valued on the underlying prices for the first 26 weeks of investment. Therefore, their investments won’t be impacted by market volatility from an earlier part of the year where they weren’t invested.

  • For clients who have invested in our smoothed funds for more than 26 weeks, smoothing will have kicked-in and their fund price will be based on a rolling average of the last 26 weeks of fund performance. This means it’s reasonable to expect a gradual drop in fund prices, which will then recover as market conditions improve. While fund values may come down, they’ll come down gently rather than dropping severely.

It’s important to remember that our smoothed funds are designed for medium to long term investment horizons of at least 5 years.

The following information highlights how the funds are well positioned to support investors through difficult market conditions.

  • Last year we updated the strategic asset allocations of the funds to improve long-term performance and make them more globally diverse, reducing the impact of market volatility in any one region. See our Smoothed Managed Fund adviser guide for more information.
  • Over the last five years (30 April 2015 to 30 April 2020), the single largest daily drop in smoothed prices was just 0.14% across our Smoothed Managed Fund range.
  • Our funds are built with a high tolerance for market stress, so underlying prices would need to drop to 80% of the smoothed price to cause an automatic suspension of our smoothing mechanism. This hasn’t happened on an LV= smoothed fund to date.

These funds are intended for clients who feel uncomfortable with financial uncertainty and want to feel confident that the worst case is limited, so our unique smoothing process graduates changes in fund performance so clients don’t experience cliff-edge falls in investment values.

Watch our ‘Understanding Smoothing’ video for an overview

Looking to reduce the impact of market volatility on client investments?

LV=’s Smoothed Managed Fund range has a built-in smoothing mechanism uniquely designed to reduce the impact of daily market volatility.

So how does it work?

Our smoothing process uses a daily average of fund prices from the past 26 weeks to reduce daily market fluctuations.

So, it’s based on what’s happened in the past rather than on speculation - making it simple, transparent, and easy for your clients to understand.

During the first 26 weeks of investment, clients’ funds are valued at the underlying price. After week 26, the smoothing mechanism kicks-in.

If markets are growing then you can expect to see smoothed prices increasing at a slower rate than the underlying prices.

But if markets are falling or fluctuating, then the smoothing mechanism will help protect investments against sudden volatility.

This extra protection is valuable for lots of client types, such as cautious investors, and retired investors.

Our Smoothed Managed Fund range can be accessed via our:

Pension (Flexible Guarantee Funds)

Bond (Flexible Guarantee Bond)

And ISA* (LV=ISA) products.

Find out more at LV.com/smoothed. Alternatively speak to your retirement consultant or call us on 08000 850 250.

Investment value can go up or down. Clients may get back less than they paid in.

*The LV= ISA is a non-profit investment therefore is not eligible for mutual bonus.

Introduction to Smoothing, for your clients

We’ve also created an ‘Understanding Smoothing’ video you can use when explaining smoothing to your clients.

Looking to grow your investments but worried about the ups and downs of the market?

The LV= Smoothed Managed Fund range could be what you’re looking for.

Smoothing helps reduce the stress of investing to offer you more tranquillity.

It gives your investments the potential to grow while helping protect what you’ve saved so far.

We use smoothing to average out the short-term ups and downs that come with stock market investing, so your money is better protected against sudden market volatility that can often induce anxiety.

Smoothing won’t protect funds against sustained poor market conditions, but it helps give stability and more peace of mind.

Here’s how it works.

After 26 weeks investment value moves to a smoothed averaged price, which is an average of daily fund prices from the past 26 weeks. When markets are growing, smoothed prices will increase at a slower rate than the underlying prices.

When markets are falling or fluctuating, the smoothing mechanism will help protect your investments against sudden volatility.

This is why the LV= Smoothed Managed Fund range is ideal if you want to reduce the risk to your investment and help protect the money that you’ve accumulated so far.

Our Smoothed Managed Fund range can be accessed via our:

Pension (Flexible Guarantee Funds),

Bond (Flexible Guarantee Bond),

And ISA (LV=ISA) products.

To find out more, speak to your financial adviser.

The Smoothed Managed Funds are stock market related investments so you aren’t certain to make a profit and may get back less than you invested.

Useful documents

Smoothed performance thumbnail

Smoothed performance

An illustration of the Smoothed Managed Funds performance

Our Smoothed Managed Funds are accessible through three product options

ISA*

LV= ISA

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

Bond

Flexible Guarantee Bond

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

Pension

Flexible Guarantee Funds

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

*The LV=ISA is a non-profit investment and does not participate in profits made from wider business risks and opportunities. There will therefore be no mutual bonus payable on the plan.

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

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