Staying invested in nervous times

In May 2019 Alpha Beta Partners launched the Lifetime portfolio, a global mixed asset portfolio with a built-in methodology to switch equity exposure to cash as markets turn lower and vice versa.

The Lifetime portfolio was launched as a core portfolio building block for those entering or already in decumulation as the extensively researched methodology has been shown to mitigate sequence risk. [1] Also, to offer a smoother return profile for those investors who are uncomfortable with more severe market gyrations.

Key to mitigating sequence risk is to avoid large drawdowns, particularly important if these occur just before or just after retirement when a pension pot is at its greatest.

Graph 1: The Lifetime portfolio sidestepping big equity market declines


Source: Whole Money Ltd. As at 28 February 2022

Fortunately, the Covid related drawdown in March 2020 was short lived but had this not been the case then AB Lifetime investors were prepared and were already sitting in cash, as shown in graph 2.

Graph 2: AB Lifetime prepared for a downturn in March 2020 and again in June 2022

Source: Morningstar As at 14 June 2022

The case for an allocation to the AB Lifetime portfolio however is not confined to the decumulation phase.

As shown in graph 3, the AB Lifetime portfolio becomes negatively correlated to a mainstream mixed asset investment portfolio, in this case proxied by the IA 20 – 60% share index, during times of market stress.

If we split an allocation to a mainstream mixed asset portfolio in two and allocate one half to the AB Lifetime portfolio then using price data from 2000, overall annual volatility drops by 25%, annual returns jump by 10% and the sharpe ratio increases by 50%.

Graph 3: The AB Lifetime portfolio provides non correlation to a market portfolio at times of market stress.

Source: Whole Money Ltd. As at 31 December 2021

Perhaps one of the most important benefits to an investor allocating to the AB Lifetime portfolio is psychological. Knowing that over the long term the portfolio will automatically reduce equity market exposure if markets trend lower but participate when they turn higher is one less worry, particularly in these nervous times. The Lifetime portfolio does not invest in derivatives, complex structures and is well priced and fully transparent. Lifetime is available via advisers across multiple platforms.

The accumulation and decumulation phases of life may both be twenty years or more over which time a portfolio needs resilience to keep growing through what will undoubtedly be a wide variety of market and economic conditions. The Lifetime portfolio is designed to dampen downside risk and smooth equity returns over the long term and so help to reduce the stress that can be associated with market volatility.

This communication is from Alpha Beta Partners a trading name of AB Investment Solutions Limited. Alpha Beta Partners Limited is registered in England no. 10963905. AB Investment Solutions Limited is registered in England no. 09138865. AB Investment Solutions is authorised and regulated by the Financial Conduct Authority. This material is directed only at persons in the UK and is not an offer or invitation to buy or sell securities. Opinions expressed, whether in general, on the performance of individual securities or in a wider context, represent the views of Alpha Beta Partners at the time of preparation. They are subject to change and should not be interpreted as investment advice. You should remember that the value of investments and the income derived therefrom may fall as well as rise and you may not get back your original investment. Past performance is not a guide to future returns. Further information is available on request, or on our website