Smoothing away the bumps in the market

Smoothed funds are gaining traction in the investment landscape, particularly as market volatility becomes more frequent and intense.

Wesleyan’s Smoothed With Profits Growth Fund, launched in 2021, was the first of its kind to be available on an independent adviser platform. Its appeal lies in its ability to deliver steady returns while helping to mitigate the impact of unpredictable market movements — a growing concern in today’s financial climate.

The fund is designed to be highly accessible and adviser-friendly, and is now available on major platforms such as Wealthtime, Nucleus Wrap, Aberdeen Wrap, SS&C Hubwise, and FNZ-powered platforms. Functioning like any other on-platform fund, it offers daily pricing, trading, and smoothing, with T+3 trading capabilities. This ease of access and transparency is a significant improvement over traditional smoothed funds, which were sometimes seen as opaque and complex.

Wesleyan’s With Profits smoothing mechanism operates on the principle of holding back returns during strong market performance to release during downturns. However, the fund’s approach is more refined. It invests across a diversified portfolio including UK and international equities, property, fixed-interest stocks, and cash - and aims to maintain payouts between 85% and 115% of the unsmoothed value.

The smoothing formula is adaptive, responding intelligently to market conditions. During volatile periods, smoothing accelerates to align the fund closer to its fair value, while in stable markets, growth is steadier and more predictable.

Transparency and simplicity are key features of Wesleyan’s modern smoothed fund. A recent survey conducted with the lang cat revealed that 68% of advisers found smoothed funds too complex, and 61% considered them opaque.

These perceptions stem from older With Profits life funds, which relied on actuaries to make subjective decisions about smoothing and included features like market value adjustments (MVAs) and reductions (MVRs), as well as discretionary bonuses.

With Profits and smoothed funds, have evolved significantly over the recent years. Systematic smoothing now replaces traditional methods, some using formulas to apply smoothing in a more timely manner. MVAs and MVRs have largely been removed, which has enhanced transparency and improved customer expectations.

Advisers often use smoothed funds in retirement planning and for later-life clients, as they help address sequencing risk, a key challenge in the decumulation phase, where withdrawals during downturns erode capital.

Wesleyan’s research shows that 62% of advisers believe smoothed funds are most appropriate for retired clients. While advisers cannot eliminate volatility entirely, they can help manage it effectively using tools like smoothed funds. These products offer a balanced, accessible, and flexible solution for clients navigating uncertain markets.

Looking ahead, it’s probably fair to say that smoothed funds are set to become an essential part of the adviser toolkit. As financial markets and client needs grow more complex, Wesleyan aims to expand platform partnerships to ensure these funds remain widely accessible and continue to support advisers in delivering stable, transparent investment outcomes.

Bear in mind that the value of investments can go down as well as up and you may get back less than you invest.