Smoothed funds: why the time is right

An introduction to smoothed funds

A smoothed fund is a mechanism that sits across a standard multi-asset fund. It’s a way of trying to adjust the price to ensure that your client doesn’t suffer from that day-to-day volatility that can surprise and shock them.

It’s a very mechanical, arithmetical formula, it’s very easy to understand and it tries to deliver a degree of security in the price of the fund, so the client doesn’t see a big drop or a big fall.

How do smoothed funds work together with other retirement solutions?

Smoothed funds are another tool in the kitbag of an adviser. At the moment, they have annuities to provide that guaranteed income. They have multi asset funds for that kind of longer-term risk managed approach where we understand, if I can buy a fund and stick it in the drawer and leave it there for 30 years and don’t worry about it, I’ll get a lot more out of the drawer than I put in.

Smoothed funds is more for those individuals who are going to look at that fund on a daily, weekly or monthly basis and who do need another mechanism that helps them remain invested, to get the benefits of that long-term market growth, the smoothed funds through the mechanism absolutely deliver that.

If smoothed funds are less volatile, does that mean a lower return?

Smoothing does not reduce return. The amount of risk a client takes reduces return. Smoothing merely gives a client the opportunity to invest in a higher proportion of growth assets, and therefore receive the benefits of that the over the longer term without the day-to-day volatility. But it absolutely does not mean a reduced return.

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Money invested is at risk and smoothing doesn’t guarantee returns.