Scottish Widows has launched a range of passive risk-weighted funds aimed at investors who are already drawing from their pension but wish to stay invested during retirement.
Iain McGowan, head of fund proposition at Scottish Widows said the new range takes the existing retirement portfolios the product provider has and adds another option.
"We think there are many investors who want to remain in the market after they have entered drawdown, and we think this product is differentiated from others in the market by having a focus on that.”
The fund range will consist of four portfolios, weighted by allocation to equities, and will use the Dynamic Volatility Management process to protect investment returns during periods of volatility.
The process reduces the fund’s equity exposure in response to significant equity market volatility. When volatility is more stable and within what Scottish Widows terms "acceptable limits" the funds invest in equity markets to target growth.
The equity allocation ranges from 10-40 per cent at the lowest risk portfolio, to between 70-100 per cent for the higher risk.
At present, all of the portfolios have equity allocations higher than the minimum permitted.
The annual management charge on all of the funds is 0.2 per cent.
All of the exposure in the funds is accessed via passive investment products.
Mr McGowan said: “Since the introduction of pension freedoms, an increasing number of customers stay invested during retirement and withdraw money using income drawdown.
"They need an appropriate investment strategy that balances the potential for investment growth with the desire to mitigate significant losses.
“The Retirement Portfolio funds recognise customers’ need for real growth to help protect their income and lifestyle from inflation, while balancing that exposure with an appropriate level of investment risk.
"Our new funds are designed to address both of these requirements, without the need for expensive guarantees or complicated hybrid design.”
Paul Stocks, financial services director at Dobson and Hodge in Doncaster, said the new range of products is attractive if "the funds can be held via third party providers of self-invested personal pensions, for example".
"Volatility management is useful but it’s important we understand how it works. The point about it it reducing risk but retaining growth potential is too good to be true – there will be compromises.
"For example I’ve seen funds which become cash locked where risk and volatility management exists and the view often is that large gains can be missed when volatility is highest if out of the market.
"The cost is interesting – other approaches which insure against losses were costly and we felt that using good cash flow management, diverse portfolios - not just a diverse fund - and ‘having a plan b’ means that more traditional and less costly approaches are used.
"But we’re all for innovation and therefore anything which does something ‘different’ means that we can further diversify if we feel it’s appropriate."
David.Thorpe@ft.com
