FE TRUSTNET
Planning makes perfect
While drawdown strategies offer the
potential to maximise retirement
income, they are not without
challenges. Deciding which option
is right for you depends on your
circumstances, objectives, risk
tolerance and investment experience.
Planning makes perfect – and this is
the case when it comes to managing
your pension. While meeting a
financial adviser would be a good
start, make sure you have mapped
your objectives and spending plans
and have a sustainable income target.
Most of all, be prepared for whatever
the market could throw your way .
PERFORMANCE OF FUND VS SECTOR OVER 1YR
Standard Life Investments Global Absolute IA Targeted Absolute
Return Strategies (-2.77%) Return (0.62%)
4%
3%
2%
1%
0%
-1%
-2%
O
-3%
the early years of retirement, an
income is drawn from the wealth
preservation portfolio to cushion any
market falls.
However, the investment team
attempts to avoid a performance drag
from the defensive assets over the
long-term.
They do this by winding down the
wealth preservation portfolio over
time, depending on the individual’s
objectives and market conditions.
Eventually, the portfolio becomes
completely invested in the wealth
accumulation portfolio.
Fire insurance
Another option is to adopt a multi-
asset approach which aims to lower
volatility – for example, by holding
funds that use derivatives to protect
against falling markets.
“Making sure your portfolio is not
only generating good returns, but
can do so in a smooth manner, is
important,” explains Rob Morgan,
pensions and investments analyst at
Charles Stanley Direct.
He says building a diversified
portfolio with a range of asset classes
with a low correlation to each other
should help to lower volatility.
However, there are many challenges
with this approach. The first relates
to the role of bonds in portfolios.
Although they have historically been
used to lower volatility and smooth
returns, they may not prove to be as
defensive as investors anticipate.
In addition, absolute return
funds have historically been prime
candidates for low volatility multi-
asset strategies. However, they have
disappointed in recent times.
For example, Standard Life Global
Absolute Return Strategies (GARS),
which at £17bn is the largest absolute
return fund, is in negative territory
over the past 12 months.
“The problem is the fund is only
as good as the ideas that go into it.
If they do not chime with what is
going on, you can have a period of
lacklustre returns,” Morgan explains.
GARS isn’t alone: close to half of
absolute return funds have lost
money over the past year, in a period
when markets have performed well.
“Making sure that
your portfolio is not
only generating good
returns, but can do so in a
smooth manner, is really
important”
[ DRAWDOWN ]
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Cover Story
Source: FE Analytics
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