Retirement planning
Delivering Strong Multi-Asset Choice
Customer Guide to Multi-Asset Funds
WHAT ARE MULTI-ASSET FUNDS?
A multi-asset fund invests in a combination of different ‘asset classes’, which are types of investment such as shares (or equities), bonds and property. Some can be relatively simple and only invest in a few asset classes, while others invest in a wider range and offer more complex ways of investing, such as sophisticated asset allocation strategies. They all share the same aim, to achieve asset diversification within one fund.
WHAT IS DIVERSIFICATION?
When you save into a pension, you and your adviser need to pick the fund (or funds) to invest in, taking into account how much risk you’re prepared to take. Generally speaking, investing in a fund that only invests in riskier assets such as equities could reward you with a high return, but there’s a greater risk that the value of your investment may fall.
On the other hand, choosing a fund which invests only in lower-risk assets, such as bonds which provide a fixed rate of return, is likely to give you more stable growth, but at a lower rate.
A better solution may be to choose to spread your investment across a mix of different assets, which have different performance characteristics. This is known as ‘diversification’ and means you’re not as exposed to the market gains and losses of just one asset class. Many investors opt for multi-asset funds that invest in a number of different areas, to increase the potential for returns in different market conditions and manage the overall risk to their investments.
WHY ARE MULTI-ASSET FUNDS BECOMING SO POPULAR?
Today, a growing number of people are more interested in whether they will have enough to retire on and so demand more from their pension plans, seeking ways for their pension pot to grow in value and also look for ways to reduce the risk of losses. At a time of market uncertainty and slowing economic growth, multi-asset funds offer the potential to make investors’ money work harder.
Investing in different types of asset classes means you don’t need to “put all your eggs in one basket”. By spreading where and how your money is invested, multi-asset funds can offer a way to manage risk and help to protect your pension pot, whilst also seeking out ways to increase its value.
WHAT ARE THE BENEFITS OF MULTI-ASSET FUNDS?
DIVERSIFICATION
Studies have shown that a diversified portfolio can potentially provide investors with the benefits of reduced risk with potentially no reduction in returns. Diverse asset classes are often impacted differently by varying economic conditions so, by investing across a spread of asset classes, multi-asset funds offer the chance to offset losses in one asset with gains in another.
Multi-asset options are designed to benefit from the basic premise that assets perform in different ways in different market conditions: when an asset like equities goes down, other assets like bonds could rise in value, and vice versa. As the below table shows on a year-to-year basis the returns of any one asset class can vary considerably.
Asset class returns by year over the past decade:
ROBUST GOVERNANCE YOU CAN RELY ON
To achieve long-term growth and manage risk, multi-asset funds, such as those provided by Scottish Widows, are subjected to rigorous governance processes. With increasingly complex investment strategies to manage risk and return, expert asset allocation is at the heart of maximising returns. You and your adviser will benefit from asset allocation being monitored and managed by experienced investment specialists, ensuring your funds are looked after in line with their agreed aims and your own risk profile.
HELPING MANAGE VOLATILITY
After a period of unusually low market volatility in the past few years, the Covid-19 crisis in March 2020 led to a significant increase in volatility. While it has smoothed out somewhat, it’s likely that volatility will remain a factor facing investors for the foreseeable future, and therefore increase the risk of shorter-term falls in the value of invested pension funds. Multi-asset portfolios can help mitigate the impact of volatility on returns. In addition, our Retirement Portfolio Funds aim to manage equity exposure during times of market volatility.
SCOTTISH WIDOWS – DELIVERING STRONG MULTI-ASSET CHOICE
Scottish Widows offer a range of multi-asset investment options, designed to deliver cost-effective and robust, risk-rated portfolios. All our multi-asset funds benefit from a comprehensive governance framework, as well as our expertise and experience in asset allocation. We launched our first Pension Portfolios in 2006, and since then we have constantly monitored the make-up and performance of our funds to ensure they meet their aims and objectives for you.
OUR FAMILY OF MULTI-ASSET FUNDS
PENSION PORTFOLIO
Our original, low-cost and straightforward portfolio fund range. Well established, they were first launched for workplace pensions in 2006 and for individual pension customers in 2010. The funds are invested in a number of passively managed funds and aim to deliver medium to longer-term pension fund growth in excess of inflation.
PREMIER PENSION PORTFOLIO
These build on our Pension Portfolio funds, but aim for better potential returns for broadly similar levels of risk (for more cost). Using a greater number of investment strategies and assets allows for greater diversification.
This means they have the potential to generate returns in a wider variety of market conditions in comparison to the equivalent Pension Portfolios.
RETIREMENT PORTFOLIO
Completing our family of funds, these are designed to meet the growing demand for investment strategies that can help make a pension last longer once you have started taking income during your retirement. They do this by using an innovative solution called Dynamic Volatility Management, an algorithm which responds to market conditions, to manage significant volatility to help a pension pot last longer.
Speak to your financial adviser if you want to know more about multi-asset funds, and the investment options and features available through Retirement Account – the Scottish Widows flexible pension plan for life.