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 3 August: 

  • The percentage of de-risked equity content was 53.9%, an increase from 44.3% on the morning of 27 July (figures represents calculations after close of trading on previous Friday).  
  • While our measure of volatility was 22.4%, the lowest since mid-March, it was the 52-week market that accounted for the increase in de-risking. 
  • The 52-week return as of close of trading on 31 July was -5.8%, compared to -1.3% in the previous week’s calculation. This captures the increase in volatility in markets a year ago, as the US-China trade war kicked off.  

Percentage of de-risking in the Retirement Portfolio Funds

Figures are calculated after close of daily trading.

27 July 2020

45.9%

28 July 2020

47.2%

29 July 2020

47.7%

30 July 2020

50.6%

31 July 2020

53.9%

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)