retirement planning

Retirement Portfolio Funds

Retirement Portfolio Funds: Managing Volatility to Help your Clients’ Pension Pots Last Longer


Our family of competitively priced, expertly managed multi-asset portfolio funds can help you meet the needs of your clients. Here’s how our Retirement Portfolio Funds could be considered suitable for certain client types.

Retirement Portfolio Funds 0.2%*

Launched in 2018, our Retirement Portfolios have been designed to meet the growing demand for investment strategies that can provide clients with a flexible and sustainable income. They do this by using an innovative solution to manage significant volatility to help a drawdown client’s pension pot last longer. 

These four risk-rated funds aim to deliver long-term investment growth through investing in passively managed funds, which help keep costs down. At 0.2%* the Retirement Portfolios are amongst the lowest-cost drawdown solutions in the market.

How our funds can help your clients

With more people staying invested during retirement and drawing down income as required, clients require investment growth coupled with reassurance their income has the potential to last as long as needed. This has led to a demand for investment strategies that can help mitigate the different risks faced by drawdown investors and aim to deliver an opportunity for long term growth and sustainability of income withdrawals. That’s where our Retirement Portfolios can help.
 

Managing the impact of volatility

Nobody can predict volatility and it’s a normal part of investing. However, increases in equity market volatility can have a detrimental impact on investment performance. This is a particular risk in the early years of pension fund withdrawal, where sequence of returns risk and inflation can mean a client’s retirement fund can be depleted more quickly than expected. The below example shows how a drop in value in the early years of drawdown, can have a greater impact on income.


 


It may be impossible to predict volatility, but you can respond to it. This is where our Retirement Portfolios come in. They do not guarantee against losses, but are cleverly designed to reduce the risk of these losses during periods of significant volatility. This is achieved by utilising our innovative Dynamic Volatility Management process.


How Dynamic Volatility Management (DVM) works

DVM uses a fast acting and innovative derivatives based approach (using equity futures) as its main method to reduce equity exposure in times of significant volatility, and therefore lower the funds’ overall volatility. We employ a fully automated algorithm which responds to market conditions, measured against a particular threshold. 

If volatility becomes significant and exceeds the threshold, DVM triggers a reduction in equity exposure, with the aim of avoiding losses. When volatility is within acceptable limits the DVM process effectively remains dormant, allowing full equity market participation and the potential growth this can deliver.

 

Extensively tested approach that works

When developing our Retirement Portfolios, we carried out testing and modelling of future simulations to simulate where the funds could be most effective. This was combined with extensive back-testing which indicated that the DVM process would’ve had a significant and positive impact during recent key equity market downturns, notably the ‘dot.com bubble’ in the early 2000s and financial crisis of 2007/08.

In the period since launch, DVM has activated briefly (and to a small extent) in January of 2019, following some short-term market volatility in December 2018. More recently, however, the dramatic market volatility of early 2020 triggered the DVM and resulted in Retirement Portfolio Funds de-risking.

 

Simple but sophisticated solution

Our Retirement Portfolios build on Scottish Widows well-founded reputation for multi-asset investing and strategic asset allocation experience. At only 0.2%* these funds are competitively priced and, unlike other drawdown solutions, don’t depend on expensive guarantees or a complicated hybrid design to reduce risk, instead using derivatives to efficiently reduce net equity exposure when the DVM is activated.  

Your clients also benefit from our robust fund governance and monitoring process, with regular reviews and independent oversight. We’ve built on our experience and track record in developing our original Pension and Premier Pension Portfolios, to deliver long-term investment growth through asset diversification. Our Retirement Portfolios can therefore offer growth potential for clients with different attitudes to risk, as well as reducing the impact of excessive equity market volatility on the sustainability of withdrawals from their pension pot.

In conclusion, our Retirement Portfolio Funds have been developed to meet the growing need for easy to use, competitively priced, ‘go-to’ solutions for clients in drawdown. They utilise our innovative DVM process to manage significant volatility to help a pension pot last longer.

For more information on Retirement Account’s strong investment options visit: www.scottishwidows.co.uk/multi-asset

*Total Annual Fund Charge (TAFC)

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