This is the second in our series of case studies designed to highlight particular ways in which Wesleyan’s smoothed With Profits fund can help advisers’ deliver pragmatic solutions for clients. This month, Wesleyan highlights how With Profits can be an integral part of an asset allocation strategy to work as an alternative to lifestyling in the approach to retirement.
Wesleyan run a version of their flagship With Profits Fund specifically for the adviser market – the With Profits Growth Fund Series A. This version is specifically designed to sit on independent platforms, thereby making it accessible to advisers at any time and meaning the fund can easily be incorporated into a diversified portfolio.
The fund aims to provide capital growth over the medium to long term by investing in UK and international equities, bonds, commercial property, cash and other related investments, while avoiding sharp rises and falls in performance by ‘smoothing’ returns.
An alternative to lifestyling? Christine’s story: using the Wesleyan With Profits Growth Fund to reduce volatility within a portfolio.
The challenge for advisers seeking investment funds for clients looking to consolidate various pension plans, is striking the right balance between risk, return and volatility. As always, there’s more chance of securing greater investment growth by taking more risk. But this may not be acceptable to clients as they draw closer to their chosen retirement date.
It can also mean more volatility – a factor that clients may simply not be comfortable with. They will likely be wanting to protect the value of their pension pot as much as possible – reducing exposure to huge swings in value and the danger of pound cost ravaging. Smoothed With Profits Funds, by their very structure, work to tackle the volatility challenge head-on.
Christine’s situation
Christine, 50, has saved into various pension schemes throughout her career and now wants to consolidate her personal pensions into one plan. In so doing, Christine is able to align her pension pots to one investment strategy, simplify the administration and organising the fees she has to pay.
Planning to retire at 65, Christine and her adviser talk about the potential impact of market volatility on her pension savings, and the need to carefully manage the risk in her portfolio as she approaches retirement.
Utilising the lower day-to-day volatility available through the well diversified, multi-asset Wesleyan With Profits Fund, the adviser is able to construct a portfolio to meet Christine’s risk profile at 50. Then, by adjusting the exposure to With Profits and flexing the mix of single strategy funds around this core holding, the adviser can evolve the risk profile over time without the need to limit exposure to real assets.
An evolving picture
The following charts indicate how the asset allocation of Christine’s portfolio can evolve over time in order to help her meet her retirement goals whilst remaining within her risk tolerance levels.
At age 50, Christine has £400K invested across various pension pots. She consolidates these into one scheme, placing £100K in the Wesleyan With Profits Fund and £300K into a range of other single strategy funds.
On turning 55, Christines pension pot has increased to £500K. With 10 years to go until retirement, she puts £175 into the Wesleyan With Profits Fund and holds £325K in a range of other single strategy funds
At 60, her pension pot has increased to £600K. With just 5 years to go until retirement, she wants to reduce the risk in her portfolio whilst still retaining the potential for growth. Her adviser recommends she splits the investment equally between the Wesleyan With Profits Fund and a range of other single strategy funds, so she holds 300K in each.
How does the Wesleyan With Profits Fund reduce volatility?
With Profits Funds can deliver consistent returns to help protect against short-term day-to-day fluctuations in value through a ‘smoothing’ mechanism.
This works by holding back some returns in times of strong performance and then using these to help cushion any fall in value in times of poorer performance. It’s a unique feature that ultimately means investors can worry less about the day-to-day ups and downs of the market. The right With Profits fund, from the right provider, can also help address advisers’, and clients’ considerations of performance. For example, Wesleyan’s with Profits Growth Pension Fund Series A invests in a mix of UK and international equities, property, cash and other assets.
Because of Wesleyan Assurance Society financial strength, alongside lower-risk assets they can hold a significant amount of higher-risk investments. These, in turn, help to power long-term returns. Ultimately, in combination with the fund’s smoothing mechanism, this means clients may simultaneously benefit from reduced volatility, while also working towards real growth.
About Wesleyan
Wesleyan has been helping people reach their financial goals for 182 years, and a large part of that longevity is down to the fact that they are a capitally strong mutual. Without shareholders, they have the scope to invest with a long-term approach, removing the pressure to pursue short-term gains.
It also gives them the opportunity to control the amount of reserves they hold, directly impacting their financial strength.
A history of delivering consistent long-term investment returns means they are well placed to support the needs of financial advisers and their clients, especially in today’s challenging market conditions.
For more information about the Wesleyan With Profits Growth Fund, please visit the website here, email here or connect on LinkedIn.
