Smoothing the ride: Why Smoothed Managed Funds deserve a closer look in volatile times
Markets have re-entered choppy waters – and clients are feeling it. Volatility is once again a defining feature of the investment landscape. For financial advisers, this means two things: portfolio resilience is being tested, and client confidence is under pressure.
Key Points
- Volatility is once again a defining feature of the investment landscape.
- Smoothing can help provide a more predictable return journey.
- The funds help preserve peace of mind as well as portfolio volatility.
- The smoothing mechanism can help reduce calls, complaints and costly investment switches.
- Now might be the perfect time to revisit smoothing – not as a niche or compromise, but as a mainstream solution.
Markets have re-entered choppy waters – and clients are feeling it. Volatility is once again a defining feature of the investment landscape. For financial advisers, this means two things: portfolio resilience is being tested, and client confidence is under pressure.
In these conditions, the LV= Smoothed Managed Funds offer a powerful proposition for advisers seeking to manage both financial outcomes and client expectations. Here’s why they are worth a closer look right now.
A consistent story in an inconsistent world
Smoothed funds aren’t new – but they’re more relevant than ever. LV’s smoothed proposition is built on a long-standing mechanism that aims to reduce the impact of short-term market fluctuations by averaging daily unit prices over time. It’s a simple concept, but its value becomes clear in turbulent markets.
When sharp market movements erode investor confidence, smoothing can help provide a more predictable return journey. That’s vital behavioural support, helping clients stay invested and reducing the temptation to de-risk at exactly the wrong time. The chart below shows the ABI 40-85% shares sector against our Smoothed Managed Growth fund, and their responses to particular market events.
Managing expectations, not just money
With clients increasingly anxious about market performance, it is inevitable advisers will have to deal with more emotionally charged conversations. The LV= Smoothed Managed Funds are designed with this very human dimension in mind. By dampening volatility, the funds help preserve peace of mind as well as portfolio volatility.
This psychological benefit can be as important as the financial one. Clients may not notice when markets rise steadily, but they certainly notice when portfolios drop sharply. In those moments, the smoothing mechanism can help reduce calls, complaints and costly investment switches. It’s not about hiding risk – it’s about presenting it in a way that clients can handle without panic.
With a Consumer Duty lens, the ability to show how your recommendations help meet client needs for consistent outcomes and emotional comfort is a major plus. Watch our video here on how to leverage behavioral science in your advice process with smoothed funds.
A timely solution for an unsettled time
While smoothing isn’t guaranteed, the track record through previous market shocks (including COVID 19 and the 2022 bond market crisis) shows impressive resilience.
For advisers looking to steer clients through volatile times while keeping long-term goals on track, now might be the perfect time to revisit smoothing – not as a niche or compromise, but as a mainstream solution.
Although our smoothing process aims to reduce the impact of sudden market movements, it doesn’t mean investments won’t drop in value. it doesn’t prevent losses due to a long-term falling market.
Although it’s unlikely, we may, at our discretion, need to suspend the smoothing mechanism to protect our members and our business.
This could be required if the underlying daily fund price was less than 80% of the value of the smoothed price, or in other exceptional circumstances.
In the rare event we do need to take this step, the fund would typically be valued on the underlying price or, at our discretion, on a daily gradual averaged price (except ISA which would be valued on the underlying price) until smoothing is reintroduced.
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