Managed portfolios are rapidly growing in popularity, and are beneficial for investors due to the “embedded advice” that they provide, investment fund industry leaders said on Friday.

At the Investment Funds Institute of Canada’s annual conference in Toronto, leaders of industry firms said that a growing proportion of mutual fund sales are coming from managed solutions.

“Most of our sales of our mutual funds now come through what we call portfolio solutions,” said George Lewis, group head of wealth management and chairman and portfolio manager at RBC Asset Management. “There’s actual advice embedded in the product.”

Lewis added that demand for these types of managed portfolios is growing particularly fast among younger investors. He expects this trend to continue, particularly as pension plans become less prominent.

But the rise of managed solutions will not eliminate the use of standalone mutual funds, according to Lewis. He expects individual funds to continue to play a role in filling the gaps in investor portfolios, and particularly those of high net worth investors.

The movement towards managed portfolios is encouraging, the panelists said, since it makes professional advice available to all Canadian investors, including those who don’t work with a financial advisor.

“Knowledge comes from advice, but you can’t deliver it across the different wealth spectrums in the same way,” said Jeff Orr, president and CEO of Power Financial Corp. “The tools that are provided for advisors are available and can be made used as packaged advice for a broader part of the population that can’t necessarily afford a financial advisor.”

Orr pointed to target-date funds as an example of a solution that features embedded advice, since their composition changes in co-ordination with the individual’s changing risk profile as he or she ages. The panelists said demand for target funds has been rising in recent years.

Other trends that the leaders are seeing include the growing popularity of cash-flow-oriented investment solutions, and the combined use of actively and passively managed investment products by investors.

Lewis said investors shouldn’t necessarily limit themselves to only passive investing or only active investing.

“There’s a place for active investing and a place for passive investing,” he said.

But the panelists said active managers have an opportunity to outperform market indices in the years ahead, since it is likely to be a sideways market for quite some time.

“I think that’s actually a good thing for active management,” said Orr.

IE