Toronto-based CI Investments Inc. launched a new product on Monday called the G5/20 series. The new retirement product will provide investors with guaranteed cash flows for 20 years.
The product is a mutual fund with an actively managed, diversified portfolio consisting of Canadian and global equity and income securities. CI Investment Consulting will handle the fund’s active asset allocation strategy.
Chicago-based Nexus Risk Management will also provide a “risk management overlay,” according to Derek Green, president of CI. This overlay is a hedging strategy, which uses exchange-traded derivatives to reduce the volatility of the equity portion of the fund.
The G5/20 series has a lifespan of 25 years. After the first five years, the investor will receive an annual 5% cash flow from either the initial investment or the market value of the fund at the five-year anniversary date depending on which is greater.
This guaranteed cash flow will help investors feel more confident about equity markets and their future retirement income, according to Green.
“With two bear markets since 2000, many investors avoided equity markets. As a result, since 2009, they have missed out on significant gains. The guarantee will give them the comfort to invest in a diversified market-based portfolio,” said Green in an email.
“In addition, many Canadians lack a guaranteed source of retirement income outside of the basic government pension plans. This product will help those people achieve much greater certainty in their retirement through the simple and straightforward mutual fund structure.”
The cash flow is guaranteed by the Bank of Montreal. The product is eligible for registered and non-registered accounts and like a mutual fund investors can redeem daily at current market value. Any remaining units will continue to provide cash flow. As well, the product will have a management expense ratio of 2.77% before taxes.
To set a fixed guaranteed value for units, the G5/20 series units will be sold quarterly, according to Green. This first fund will be available for purchase until September 30. A new G5/20 fund will be made available to investors on October 1.