Smoothing explained:

SkipNav

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 less volatility as the effect of dramatic stock market fluctuation is ironed out by the smoothing mechanism. If there’s sudden and dramatic market growth, fund growth will be less – but if markets quickly fall, the smoothing mechanism helps to cushion the impact. 

This gives real appeal to your clients who are cautious with their investment, or are retired.

Smoothing in the first 26 weeks

Clients who invest in LV= TIP and LV= Smoothed Pension funds will begin to experience the benefits of smoothing from day 2 of their investment. Our smoothing process builds up to a 26-week average by cumulatively averaging underlying prices across the investment period.

Once clients have invested for longer than 26 weeks, their fund value will equate to a rolling average of the previous 26 weeks of underlying prices.

 

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. 

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

In the first 26 weeks

 
Smoothing explained graph

The first 26 weeks for ISA (LV= ISA) and Bond (Flexible Guarantee Bond) 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.

In exceptional market conditions (when the underlying price is 80% or less of the averaged or ‘smoothed’ price) the fund will be valued on the underlying price. For LV= TIP and the LV= Smoothed Pension, the fund may be valued on the daily gradual averaged price. We reserve the right to move to the underlying or gradual averaged prices at other times too.
smoothing after 26 weeks for TIP

Help clients understand how our smoothing process works

For clients invested in our Smoothed Pension and LV= TIP, this video helps explain our smoothing process and how it protects pension savings through all market conditions. 
 

Our Smoothed Managed Funds are accessible through four product options

smiling woman in swimming costume in sea with arms in the air

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.

Flexible Guarantee Bond With three flexible options, your client will benefit from a secure, simple and low-cost investment. 
LV= ISAWith a simple on-boarding process and smoother investment journey, the LV= ISA protects your clients’ investments from short-term market volatility.