Advisers should consider smoothed funds in times of market turmoil to provide greater stability for clients, according to provider LV.
Sarah Hills, wealth proposition director at LV, said risk-managed solutions could be a good way to manage exposure to risk and help clients stay calm when markets are turbulent.
But advisers are not convinced about the benefits of the product, some calling their mechanism “artificial” and warning they could give clients a false sense of security.
Hills said smoothed funds, which often use an averaging mechanism for a fund’s daily price over a certain time, in LV’s case 26 weeks, cushioned the impact of any investment volatility.
She said expecting market volatility, rather than being surprised when it happens, was key to supporting clients through tough market times. And using a mix of products around retirement could be a good strategy for more cautious investors.
She said: “Clients may not notice when markets rise steadily, but they certainly notice when portfolios drop sharply.
“Given the ongoing uncertainty in the markets, advisers should consider incorporating risk-managed solutions – like smoothed funds – into their retirement propositions to help provide clients with greater stability and confidence in the moments that matter most.”
In early April, the FTSE 100 experienced steep losses not seen since the pandemic in response to US President Trump’s tariff policies.
Global markets also saw significant and sustained drops, eventually leading to a 90-day pause on the policy.
Smoothed funds employ a number of strategies, depending on the provider, to smooth over such market volatility, and potentially helping prevent knee jerk reactions from investors.
But advisers have their concerns.
“I find smoothed funds are a bit like property,” said Rob Mansfield, IFA at Rootes Wealth Management.
“They give an illusion of stability by not being under the daily valuation microscope. I’m yet to be convinced they offer genuine value.”
He said he likes to include an element of structured products in his clients’ retirement solutions instead.
“If the profile looks good you can get strong returns with decent downside protection. They can help soften volatility in the market based part of the portfolio.”
Scott Gallacher, director at Rowley Turton, also said he was not a fan of the products.
“I liken them to a frog in an iron box,” he said. “Markets naturally jump around, and smoothed funds can give a false sense of calm.
“The risk is that the ‘iron box’ turns out to be a wet paper bag, and when the frog (the market) breaks out and the smoothing proves not so smooth or secure, investors are shocked.
“We prefer transparent, well-diversified strategies over artificial smoothing— especially for retirement income,” he added.
But LV said for clients with a lower tolerance for the daily ups and downs of markets, using smoothed funds on their own, alongside an MPS to act as a core stabilising asset, or pairing with other smoothed funds to diversify elements of smoothing, could support clients moving through their savings and retirement journey.
carmen.reichman@ft.com
