Aviva's rival to the PruFunds range suffered its first unit price adjustment hit in December as difficult markets wiped out the fund's gains over 2018.
The Smooth Managed fund, launched in December 2017, uses a similiar smoothing mechanism to Prudential's popular range of with-profits funds. This means that when the value of the fund's underlying assets rises above or falls below a certain amount a unit price adjustment is carried out.
In its first year the Aviva fund grew according to its smooth growth rate by 4.9% between January and 18 December (see graph below).
However on 19 December the value of the underlying assets fell below 6.5% of the fund’s unit price. As this was the mark where adjustments occur the unit price of the fund subsequently fell by 5%.
One difference between the Smooth Managed fund and the PruFunds is that with Aviva’s version a client enters the fund the day they invest, and they can then see unit price adjustments straight away. With Prudential’s version investors go into a separate fund account until after the first unit price valuation check which are made monthly or quarterly.
One adviser with clients invested in the fund, who did not want to be named, told New Model Adviser® Aviva’s system is not smoothing properly as one of his clients saw a unit price fall one month after entering it.
‘They [Aviva] promoted this fund as a solution for drawdown clients to smooth out volatility but my client in drawdown has just been hit with -5% after one month in the fund,’ he said.
‘That is the reason I cannot use the fund again because Aviva cannot guarantee clients will not get hit with a hefty unit price adjustment in the short-term as there is no way of knowing the difference between the smoothed and unsmoothed price.’
He added the Aviva system is not good for short-term investors who have only just invested.
An Aviva spokesman said: ‘We do not offer a “holding period” facility on the Smooth Managed fund as we believe this would have added complexity and cost. We clearly explain in our fund guide how the smoothing process works and how it could affect new investors.’
He also pointed out the unit price adjustment of 5% came as the ‘FTSE was down over 11% over the same period and all other major assets classes have fallen in 2018’.
As New Model Adviser® reported last month, several PruFund products also suffered unit price adjustments recently in the turbulent end of year markets.
Aviva was also criticised after the unit price adjustment on its fund was not included in the fund's factsheet the day after the unit price adjustment and it incorrectly showed the one year performance of the fund to be plus 4.9% on its one year anniversary. The factsheet was not corrected until yesterday (2 January).
The IFA New Model Adviser® spoke to said the incorrect factsheet was ‘misleading new investors’ and it was ‘wrong’ Aviva ‘applied the adjustment the day after the one-year anniversary’.
A spokesman for Aviva said the factsheet is updated daily but due to ‘an error’ it did not display the unit price fall and was taken down before later being corrected.
‘The Aviva factsheet updates the fund performance on a daily basis throughout the year. Unfortunately there was an error in updating the factsheet on 19 December, the day of the price adjustment, so we removed the factsheet from our website to ensure we did not show any incorrect information while we resolved the issue. The correct chart was available from 2 January.
‘We communicated the adjustment to our sales teams on the morning of 19 December so that they could inform advisers that an adjustment had been made. We will look at ways of being more proactive with our communications when adjustments are applied.’