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.

Our smoothing mechanism takes a common-sense approach, averaging a fund's daily underlying price over the past 26 weeks to produce a `smoothed' fund price.

This process aims to reduce the stress of stock market investing and provide a calmer investment journey for clients.

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 be 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.

You can also read our article Smoothing Explained.

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How does LV's smoothing mechanism work?

Day one - Your money is invested into your chosen fund(s) at the fund's underlying unit price on that day - this is the unsmoothed price.
Day two - The unsmoothed prices for day one and day two are added together and divided by two. Smoothing has started on your investment, and your fund value will now begin to reflect the gradual averaged price.
Day three - The unsmoothed prices for days one, two and three are added together and divided by three. This process continues until you've been invested for 26 weeks (roughly six months).

From 26 weeks onwards your investment value will be an average of the unsmoothed prices over the preceding 26 weeks on a rolling basis. This is our smoothed price.

For clients investing in our ISA, the process is a little different:

In the first 26 weeks – The investment is valued at the underlying price for the first 26 weeks.
After the first 26 weeks – The smoothing mechanism starts and your fund is usually valued at the averaged daily price of the previous 26 weeks.

This chart is an illustration of how our smoothing mechanism works to soften the impact of fluctuations in the underlying fund value.

Graph showing the smoothing mechanism

Simulated unsmoothed unit prices have been used, with the smoothing mechanism applied, to illustrate how the mechanism would react over a period of 18 months.

Remember, our smoothing process helps reduce the impact of market volatility, but it doesn’t eliminate the risk of the investment losing value.

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 range of 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 smoothing 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.