retirement planning

Iain McGowan on the Scottish Widows Family of Funds

An in-depth look at our core multi-asset pension funds with Scottish Widows’ Director of Investments


Q:  What are the Scottish Widows ‘family of multi-asset pension funds?

While we have other multi-asset ranges, this refers to our three related ranges of pension funds, which are available to individual pension customers (through our Retirement Account proposition) and to those in workplace pension schemes. They are:

1. Our Pension Portfolio Funds (which are available individually as well as forming the building blocks of our Governed Investment Strategies (GIS) for individual pension customers and our Pension Investment Approaches (PIA) for workplace schemes).

2. Our Premier Pension Portfolio Funds (which similarly are available individually, but also form the building blocks for Premier GIS and Premier PIA).

3. Our Retirement Portfolio Funds.
 

Q:  What are the differences between these three ranges and how do they meet your customers’ needs?

Our Pension Portfolio Funds are our original multi-asset pension fund range.  Each Pension Portfolio is made up of a number of passively managed ‘tracker’ funds, which themselves invest primarily in equities and bonds. We decide and review the ‘split’ between these funds, meaning that the Pension Portfolio range combines the benefits of low-cost passive investing with our own asset allocation decisions.

While the Pension Portfolios have been, and will continue to be, a vital part of our offering, just over four years ago we launched our Premier Pension Portfolio Funds to meet demand for a range that provides a wider range of investments. That diversification within Premier offers potentially higher returns for the same level of risk as the equivalent Pension Portfolios.

Finally, two years ago we launched the Retirement Portfolio Funds, which are specifically designed to meet the needs of customers taking income drawdown during retirement. We undertook considerable research into the impact of market downturns on a pension pot during retirement and how this could be mitigated. As a result, we incorporated our Dynamic Volatility Management (DVM) process, which we believe is unique, into all our Retirement Portfolios.

Q: The Premier Pension Portfolios hold a significant proportion of their equity weighting in ‘smart beta’ strategies. Why did you decide to include these over traditional market-cap-weighted passive solutions?

Market-cap-weighted passive funds present a simple and effective means of giving exposure to equity markets and, as such, they play an important part in our Pension Portfolio Funds. We see advantages though, to alternative forms of index tracking, in terms of long-term performance prospects. The ‘smart beta’ funds that we use within the Premier Portfolios are constructed using the fundamental value of the underlying companies, which we consider to be a more reliable measure of long-term value than their market-cap weighting. ‘Smart beta’ strategies are more expensive to invest in than market-cap funds and this is made by possible by the additional charge on Premier.

 

Q: You said that you undertake your own asset allocation decisions – please could you explain which team is responsible for this, and do they express their views across all three of the fund ranges?

We have a dedicated Asset Allocation Team within the Investments group. The team has a great depth of experience and industry knowledge.

We set a long-term (or strategic) asset allocation for each of the Pension Portfolios and review that about once a year. In these reviews, we are looking for opportunities to improve long-term returns (based on financial modelling), without increasing the risk profile of the Portfolios. This strategic asset allocation is also carried across directly into the Retirement Portfolios as a matter of course. We similarly review the strategic asset allocation of the Premier Portfolios, with a view to improved returns relative to the equivalent Pension Portfolio at a similar level of risk. 

Additionally, we are always alert to opportunities to include new asset classes in any of the Portfolios, if we believe they will contribute materially to long-term outcomes.

 

Q: How have the Premier Portfolio Funds performed since they were launched?

The Premier Portfolios have produced positive absolute returns since launch. Those with the highest equity content have had the best returns over that four-year period, although they had the biggest losses in the first quarter of 2020, when equity markets declined sharply.

Diversification can be particularly important in challenging investment markets. In general, Premier underperformed during the strongly rising equity markets in 2016 and 2017, when the higher equity content of the Pension Portfolios drove returns.

This is broadly what we might have expected in these market conditions.

 

Q: Your whole family of funds appear to be very competitively priced. How committed are you to maintaining the quoted Total Annual Management Charge for each of the ranges?

It is important to us that these ranges are competitively priced. This is reflected in the annual management charge, which also includes other expenses within a portfolio, often known as the Ongoing Charges Figure, or OCF.

We have achieved this pricing through our careful selection of asset classes and underlying funds, and by sourcing the underlying funds on competitive terms.  We are committed to continuing to apply these disciplines and reflecting them in our price to customers.

Q: Do you anticipate making your portfolios available via third-party platforms?

Not in the short term. Our portfolios are available only through Scottish Widows pension wrappers for now.

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