With-profits funds employ the concept of smoothing. That is, a proportion of the profits earned during good years is held back to aim to ensure that a reasonable return is paid during years of poor performance. This may result in a smoothed effect on the increase of the unit price, as opposed to fluctuations that would normally occur in the daily price for other stocks or shares. An important difference between this and the normal statistical sense of smoothing is that it has to be attempted without knowledge of future developments, which may cause the "smoothed" value to move further and further out of line with the "unsmoothed" value, necessitating a sharp correction at some point in the future.
Read more about this topic: With-profits Policy
Famous quotes containing the word smoothing:
“Whale on the beach, you dinosaur,
what brought you smoothing into this dead harbor?
If you’d stayed inside you could have grown
as big as the Empire State.”
—Anne Sexton (1928–1974)
“He was always smoothing and polishing himself, and in the end he became blunt before he was sharp.”
—G.C. (Georg Christoph)
“Generation on generation, your neck rubbed the windowsill
of the stall, smoothing the wood as the sea smooths glass.”
—Donald Hall (b. 1928)