Scottish Widows has launched a range of multi-asset funds aimed at drawdown investors who want to reduce risk of capital loss during volatile markets.
The four multi-asset Retirement Portfolio funds are aimed at customers considering or taking withdrawals using income through the Scottish Widows Retirement Account.
The insurer said the funds temporarily reduce exposure to equities when ‘volatility becomes significant’. This process will in fact be driven by what Scot Wids calls a ‘fully automated algorithm’, dubbed dynamic volatility management (DMV).
In a press statement it said: ‘In volatile market conditions, it triggers a reduction in equity exposure with the aim of mitigating or offsetting investment losses. When volatility is within acceptable limits, the DVM process retains equity market participation and growth potential’.
Strategic asset allocation is based on Scottish Widows’ Pension Portfolio funds, investing in UK and global fixed-interest and equities, including passive funds. The fund charge will be 0.20% per annum.
Iain McGowan, head of fund proposition at Scottish Widows, said drawdown customers ‘need an appropriate investment strategy that balances the potential for investment growth with the desire to mitigate significant losses’.
As part of its 2017 financial results announcement, the insurer's parent company Lloyds announced it would spend £3 billion on a new strategy which will grow the group’s financial planning offerings.
Rise of the buffer funds
Scottish Widows’ latest launch follows the success of other funds promising to limit the impact of market downturns. These funds particularly appeal to drawdown investors, and their advisers, who are wary the impact poor returns early on in drawdown can have on a portfolio, so-called reverse pound cost averaging or, pound cost ravaging.
Nowhere is this more true than with the PruFund range which has attracted £32.6 billion. Although its head of business development told us it ‘would not magically go in the opposite direction’ in a market downturn', its smoothing mechanism is designed to ‘put the brakes on when the market goes into extreme free fall’.
In December, Aviva launched its competitor to PruFunds with its Smooth Managed Fund with a growth rate target of 5% above Bank of England base rates. ‘In simple terms, we smooth out some of the ups and downs of typical stock market investing,’ said Aviva.
|Retirement Portfolio Funds|
|Name||Equity content range flexibility||Current Strategic Equity Allocation||Current Strategic Fixed Interest Allocation||Yearly Fund Charge|
|Scottish Widows Retirement Portfolio 10-40||10% to 40%||30%||70%||0.20%|
|Scottish Widows Retirement Portfolio 30-60||30% to 60%||50%||50%||0.20%|
|Scottish Widows Retirement Portfolio 50-80||50% to 80%||70%||30%||0.20%|
|Scottish Widows Retirement Portfolio 70-100||70% to 100%||85%||15%||0.20%|