Smoothing Explained

Smoothing explained:

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Simple, transparent and easy to explain to your clients

Explaining smoothing to your clients doesn’t need to be complicated. It’s easy for your clients to understand as it’s based on what’s already happened - rather than what might happen in the future.

So, how does smoothing work?

Our smoothing mechanism takes the average of a fund’s daily price over the past 26 weeks – this produces a ‘smoothed’ average fund price. The smoothing mechanism is applied separately to each individual contribution paid.

Your clients will experience a calmer investment journey as the effect of large daily stock market fluctuation is dampened by the smoothing mechanism. In the event of sudden stock market growth, smoothed funds will not reflect this immediately, but equally if markets quickly fall the smoothing mechanism helps to cushion the impact.

This could make our smoothed funds particularly appealing to clients who are cautious in their investment style, or are taking a retirement income.

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Our smoothing mechanism explained

This video is designed to illustrate how our smoothing mechanism works and the impact it aims to have.
Although it's unlikely, we may, at our discretion, need to suspend the smoothing mechanism to protect our members and our business. This could be required if the underlying daily fund price was less than 80% of the value of the smoothed price, or in other exceptional circumstances.

In the rare event we do need to take this step, the fund would typically be valued on the underlying price or, at our discretion, on a daily gradual averaged price (except ISA which would be valued on the underlying price) until smoothing is reintroduced.

This video can also be found on lv.com/investments/investment-products to share with your clients.

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Smoothing in the first 26 weeks: explaining the process

Gradual averaging applies during the first 26 weeks of investment or after a fund switch.

Day 1 - units are purchased at the fund’s underlying unit price.
Day 2 - the underlying unit prices for day 1 and day 2 are added together and divided by 2 to produce the gradual averaged price.
Day 3 - the underlying prices for all 3 days are added together and divided by 3. This process continues on for 26 weeks, after which the averaged (‘smoothed’) price normally applies.

The chart uses simulated investment performance to illustrate the impact of the smoothing mechanism.

In the first year

Smoothing graph showing price increasing over time

The first 26 weeks for ISA (LV= ISA) investors

When your client initially invests, their fund is valued at the underlying price for the first 26 weeks.

After the first 26 weeks

Across all wrappers, the smoothing mechanism kicks in and your client’s fund is usually valued at the averaged or ‘smoothed’ price - which is based on the average of the daily underlying unit prices for the previous 26 weeks.

This chart uses simulated investment performance to illustrate the impact of the smoothing mechanism.

Smoothing can be suspended at our discretion. This may be in exceptional conditions or if the underlying price was 80% or less of the averaged price. If smoothing was suspended the funds will be valued using the underlying price. For LV= TIP, LV= Smoothed Pension and LV= Smoothed Bond, the fund may be valued on the daily gradual averaged price with an appropriate smoothing period of up to 26 weeks at our discretion. We reserve the right to move to the underlying or gradual averaged prices at other times too.

Our Smoothed Managed Funds are accessible through four product options

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LV= TIP

Increase the availability of our smoothed funds for pension investors, giving your clients access to our three unique funds via other providers’ SIPPs and SSASs.

LV= Smoothed Pension

Grow your clients’ pension fund with a reliable investor experience with low volatility.

LV= Smoothed Bond

Secure your clients’ funds with an onshore investment bond that offers a unique mechanism designed to smooth the impact of market volatility.

LV= ISA

With a simple on-boarding process and smoother investment journey, the LV= ISA aims to lessen the impact of short-term market volatility on your clients' investment.