Defined returns fund can soften retiree pain in next market turn: Atlantic House

It may be an accepted truism that stock markets generally go up over the longer term, but it’s just as widely acknowledged that markets are cyclical, and downturns are inevitable.

Most of the developed world has had an extended market run over the last ten or fifteen years, where even a global pandemic could only cause a momentary blip on indexes before they roared back to life. Over the last ten years the MSCI World Index has an annualised return of 11.7 per cent; over the last five – through the meat of the pandemic – the number is 12.9 per cent.

But that market resilience will be broken, eventually. The timing may be a matter of conjecture, but the eventual likelihood isn’t.

For retirees, that poses a problem – not only because of the damage a serious market downturn can do to returns, but with respect to the danger of sequencing risk if retirement and a downturn collide. Withdraw retirement funds at an unhappy time for markets, and the outcome could seriously undermine years of retirement savings and planning.

And while Australians retirees have historically been wary of trying to locking their funds away into annuity-style products, there are alternatives that may provide the best of both worlds. UK fund manager Atlantic House has recently brought a feeder fund from the UK that offers defined return benefits through exposure to equities, but with a degree of liquidity and ease of access.

And it just may be the key to building better multi-asset portfolios for retirees and their financial stewards.

“We think there’s a market for this fund because there are a lot of investors in the retirement phase, which is ideal for defined returns,” said Atlantic House co-founder and head of Australia, Andrew Lakeman (pictured) on a recent webcast.

“It’s an exciting time to take what we do to Australia,” he continued. “The great benefit of defined products is the fact that they add a different return element within client portfolios, we’ve used them on a standalone basis and as perhaps a more defensive way of accessing equity markets.”

Lakeman believes the Defined Returns Fund fits the lower risk profile of retirees because it not only reaps equity-like returns, but provides a decent return when markets go through downturns. In that sense, he explains, the fund provides a degree of security and surety that equities, or other funds entirely beholden to markets, struggle to match.

When markets are rising and investment portfolios are doing well, clients are pretty happy,” he added. Obviously in more challenging times, you want to be looking to at ways to try and add positive returns into portfolios that don’t need markets to go up. Using structured products as a more defensive way of getting returns that will potentially provide attractive coupons… has added some really attractive returns to portfolios over the years.”

Tahn Sharpe

Tahn is managing editor across The Inside Network's three publications.