MARKET VOLATILITY UPDATE

Retirement Portfolios & Dynamic Volatility Management

The Scottish Widows Retirement Portfolio Funds (RPF) feature a de-risking process called Dynamic Volatility Management (DVM).

DVM is designed to kick in when equity market volatility increases significantly, and is determined by:

  • Taking as a starting point a market volatility threshold, initially set at the 60th percentile of average historic volatility.
  • Adjusting based on the equity performance over the previous rolling 52 weeks.

 

The DVM threshold is currently activated; as a result, a portion of the RPF equity content remains de-risked.

As of Monday morning 12 October:

  • The percentage of de-risked equity content was 13.7%, a decrease from 22.0% as of the morning of 5 October (figures represents calculations after close of trading on previous Friday).
  • Our measure of volatility was 21.1% and the 52-week market return was 5.9%.
  • While the level of volatility has remained steady, the 52-week return has improved in recent weeks, so the dynamic volatility threshold has moved higher. This accounts for the lower level of equity de-risking in the Retirement Portfolio Funds. 

Percentage of de-risking in the Retirement Portfolio Funds

Figures are calculated after close of daily trading.

5 October 2020

20.3%

6 October 2020

18.7%

7 October 2020

19.4%

8 October 2020

16.2%

9 October 2020

13.7%

DVM data is subject to change daily, as market conditions can change rapidly and de-risking may switch off again quickly. We are working closely with Schroders, our strategic investment partner, to monitor market conditions and position the RPF accordingly.

Long-term investing

Investing – in equities in particular – should always be considered with a medium to longer-term horizon. While the causes of current market stress are outside of the ‘norm’, equity markets have demonstrated over many decades their ability to recover from short-term troughs and deliver strong returns for investors over the medium to long-term.

Volatility: Retirement Portfolio Funds – latest update on our Dynamic Volatility Management (DVM) process.

Dynamic Volatility Management status (PDF)