Smoothed funds evolved – time to challenge the myths

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Smoothed funds have evolved over the past couple of decades. And, according to NextWealth, 35% of financial advisers recommend them for new client money - and for good reasons¹.

Smoothed funds have great potential to provide some shelter from continued stock market volatility; they help clients with the behavioural side of investing; and they are a useful resource as people approach and enter retirement.

Historical issues mean some people may view smoothed funds through a negative lens. But smoothed funds have evolved over the last few years with new variations, such as the Standard Life Smoothed Return Pension Fund that differ somewhat to those smoothed funds of old. 

They have also been tried and tested in recent years with some extreme volatility – think back to Covid market dips and recoveries, the Liz Truss Budget and Donald Trump’s ‘Liberation Day’. These are all moments that gave investors huge concern and anxiety but have been more calmly navigated in a smoothed fund. 

Let's take a fresh look at modern smoothed funds and tackle some popular misconceptions.

 

1. "They’re opaque"

Perhaps in the past it was hard to see how smoothed funds worked, but most modern versions operate openly and transparently. It may be out-of-date perceptions are lingering without justification, affecting how modern smoothed funds are viewed by the advice community.  

For example, at Standard Life we are very clear about using an Estimated Growth Rate (EGR), which is calculated using long-term growth expectations of the underlying assets. We analyse performance and volatility data to get to this figure, and it’s reviewed quarterly. This means the fund grows consistently each day according to that EGR.

Standard Life sets the EGR each year based on long-term forecasts for the fund’s underlying assets, which are reviewed every quarter. It generates these forecasts using its proprietary capital market assumptions (CMA) tool. These results are then compared to outputs produced by other specialist CMA providers and forecasts from external asset managers.

The smoothed unit price should typically rise in line with the EGR (after charges). The fund is monitored daily to make sure the smoothed and unsmoothed (market value) unit prices don’t drift apart by more than 10%. If markets move sharply, the smoothed price can be adjusted to bring it back within 2.5% of the unsmoothed price. 

On top of that, an extra check is run twice a month to ensure the prices haven’t diverged by more than 5%. If they have, the smoothed price is adjusted to halve the gap. 

 

2. "They’re too expensive"

Smoothed managed funds are typically a bit more expensive because you’re paying for an extra layer of risk management on top of a normal, diversified portfolio. Behind the scenes, additional work is done to “smooth” the ups and downs of markets so that the fund value moves more steadily over time. This can be especially appealing if clients are looking to help mitigate volatility within their portfolio, whether that be as a more cautious investor, or when taking an income. So that added peace of mind, is a small price to pay. The Standard Life Smoothed Return Pension Fund is charged at 0.80% (this charge does not include any platform charges).

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3. "They’re too complicated"

"Smoothing" sounds simple enough, but in years gone by, the exact formulas, buffers and timings were rarely disclosed to investors, leaving them with a sense of uncertainty around what was going on with their investment. Market Value Reductions (MVRs) added further confusion and had the potential to limit when investors could access their funds. Bonuses also played a part in the value of With Profit funds, but some of these were not certain or guaranteed. 

Standard Life makes it clear what a smoothed fund offers retail investors nearing or in retirement. It’s a simple way to ride out the ups and downs of daily market volatility. We’ve tracked recent market volatility and built our learnings into the design of our science-based EGR.  

The proof is in the pudding, because we know our smoothed fund is easily explained: The Smoothed Return Pension Fund is a multi-asset fund that runs with a smoothing mechanism. This means investors experience a simpler profile of investing, rather than the rollercoaster of a typical fund. Because the price of the fund follows the EGR, it increases at a consistent level each day, with infrequent, larger price adjustments. It is independently risk-mapped, risk-rated and risk-profiled. So, you know what your clients are getting.

 

4. "They’re hard to access"

In the past smoothed funds sat apart from other investments. They weren’t available on platforms and accessing them meant working with a separate provider. That created an additional layer of administration for advice firms, causing delays in client reporting and increasing the risk of error from necessary human intervention.  

Today the picture is very different. Some smoothed funds now sit comfortably alongside the rest of a client’s investment portfolio on-platform. Reporting, rebalancing and income are all in one place for smooth processes and reduced administration.  

At its core the Standard Life Smoothed Return Pension Fund, available on the Fidelity Adviser Solutions platform, is a well-diversified multi-asset fund, with a smoothing mechanism overlayed, that helps investors manage the potential anxieties and uncertainty of investing.  

Replacing some outdated perceptions with facts is the first step in helping more investors experience the advantages of smoothed funds for themselves.

 

What about the Standard Life Smoothed Return Pension Fund? 

Now we’ve removed the haze from some of these prevailing myths, how does the Standard Life smoothed fund stack up? In simple terms, like other smoothed funds, it is a multi-asset solution that runs with a smoothing mechanism. 

Why? Because this approach to investing gives advised clients the opportunity to diversify their investments, as well as grow their pension savings over the medium to long-term, sheltering from the effects of short-term volatility in global markets. 

In an uncertain world rife with market turbulence, the value of investments often fluctuate quite a bit from day to day, week to week and month to month. This can be worrying to investors who check values every time they see alarmist news headlines about stock markets dipping down or being overvalued. 

The Standard Life Smoothed Return Pension Fund is a useful option to consider for advised clients typically nearing or entering retirement who are keen to avoid constant anxiety about this persistent uncertainty. 

 

Who is it suitable for? 

This fund is especially designed for pension savers in the ‘Retirement Risk Zone’ – the critical 5-10 years before and after the date they choose to retire. This is when their pension savings are arguably at their most vulnerable. Any significant market movements during this time could have a big effect on their anticipated lifestyle in retirement.

 

What is the main benefit of this smoothing? 

Three words aptly sum up what pension savers get from the Standard Life Smoothed Return Pension Fund: peace of mind. Those accumulating money in preparation for retirement and wishing to grow their savings over the medium to long term, will feel more confident about investing in the fund. They can ignore fears regularly stoked by media alerts about any lurches occurring in stock markets. Those already retired can be confident that the fund is helping to grow their money and provide income along with other sources such as the State Pension, while enabling them to tune out market turbulence.

 

How can the Fund be accessed? 

The Standard Life Smoothed Return Pension Fund is currently available to advisers using the Fidelity Adviser Solutions platform where it can be held alongside other funds and model portfolio’s.

You can find more information on our Smoothed Return Pension Fund page.

 

1. NextWealth Smoothed funds proposition and distribution report (July 2025).

 

Money invested is at risk. The value of investments can go down as well as up.