Smoothing explained

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.

Clients who invest in LV= TIP, LV= Smoothed Pension and LV= Smoothed Bond 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.

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.

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