It was only a matter of weeks ago, in late November 2021 when the World Health Organisation (WHO) designated the latest Covid-19 variant B.1.1.529 a variant of concern following its discovery in Southern Africa. Now well known by the name Omicron, in a few short weeks its ability for rapid transmission has sent reverberations around the world. As clever scientists have been grappling with data to try and work out what the impact of this latest variant will be on public health, stock markets have ebbed and flowed in response to their findings.
The start of 2022 saw new highs for both the Dow Jones and S&P 500 indices while the UK’s FTSE 100 index reached its highest level since February 2020 as omicron fears subsided. But will this bullish sentiment last? Will yet another Covid variant emerge in future which will threaten our immunity from natural infection and/or vaccination to a greater degree? We simply don’t know. Such uncertainty adds to market volatility and not every investor is able to tolerate the ups and downs of market cycles.
And then there are concerns about inflation. In December 2021, UK inflation hit its highest level in a decade as the ONS reported the current inflation rate to be 5.1% – far higher than the Bank of England’s target of just 2%. While some economists have been arguing that the situation is transitory, others are of a different mindset believing the opposite to be true. In the US and the EU, inflation targets are being overshot by current rates too. Today’s highly uncertain global economic environment poses a real challenge for advisers and paraplanners as they try to make appropriate long term investment recommendations to clients.
A smoothed investment solution
In such uncertain times, smoothed investment returns, such as those offered by the PruFund funds range, are one way of offering clients the opportunity for growth over the medium to long term (5 -10 years). Pru’s range of multi-asset funds uses an established ‘smoothing process’ which aims to protect investors from the extreme short-term ups and downs of direct stock market investment. In other words, the funds look to provide clients with a more stable rate of growth than they would get, if they were directly exposed to the daily changes in the fund’s underlying investment performance. So while clients won’t benefit from the full upside of any potential stock market rises, they won’t suffer from the full effects of any downsides either.
To achieve this ‘smoothing’ the PruFund range of funds uses Expected Growth Rates (EGRs) and, where required, Unit Price Adjustments (UPAs), to deliver a smoothed investment journey. However, there may be times when the smoothed price of a PruFund fund on a particular day might be reset to protect the With-Profits Fund. There may also be occasions where Pru have to suspend the smoothing process for one or more PruFund funds for a period of consecutive days, again to protect the overall With-Profits Fund and those invested in it.
When this happens, the smoothed price for the affected fund(s) is set to the unsmoothed price for each day until the smoothing process in reinstated.
To find out more about PruFund, please click here
To find out in more detail about how the smoothing process works in practice View A Step by Step guide to the PruFund smoothing process (PDF) or watch the how PruFund works client video.
The value of investments can go down as well as up and your client may not get back what they have paid in.