Toronto-based AIM Funds Management Inc.’s new target-date retirement product is designed to help clients with retirement-income needs as well as provide exposure to a mix of internationally diversified investments, says John Ciampaglia, AIM’s vice president of product development.

The Invesco Trimark Retirement Payout Portfolios combine mutual funds and exchange-traded funds managed by affiliated companies into multi-fund packages paying an annual income. The portfolios use currency hedging, which allows clients to take advantage of global diversification while shielding them from exchange rate volatility.

The new products come with pre-set maturity dates, and employ a built-in asset-allocation strategy by which they gradually move from an equities-dominant asset mix to conservative holdings such as fixed-income and cash. Management fees decline as the portfolio mix becomes more conservative.

The portfolios are meant to offer growth potential as well as tax-efficient annual distributions based on a percentage of assets in the portfolio. The percentage rate of the payout increases every year, with the result that all of the assets are distributed to clients by the maturity date.

“We have thought carefully of the challenges faced by the aging boomer demographic in retirement,” says Ciampaglia. “For a long time, we’ve been helping people accumulate the assets they need for retirement. We want to cover the full product suite and offer a product designed for the income challenges faced by retirees.”

There are four separate Invesco Trimark portfolios, each with a minimum investment of $25,000. Maturity dates are 2023, 2028, 2033 and 2038, resulting in holding periods ranging from 15 to 30 years.

The targeted annual distribution rate depends on the length of time to maturity and changes every year. For example, the 30-year portfolio starts with an annual distribution rate of 5% of net asset value, paid monthly. At 15 years to maturity, the distribution rate will be 7.5%, rising to 29.25% with three years to go and to 67.7% with one year to go.

Portfolio holdings include mutual funds offered under the Trimark, AIM and Invesco brand names, as well as a group of five PowerShares ETFs. The ETFs are managed by PowerShares Capital Management LLC, a subsidiary of U.S.-based Invesco Ltd. and a sister company to AIM. Ciampaglia says these “intelligent ETFs” offer a more sophisticated investment strategy than simply replicating the performance of a popular index.

Unlike traditional ETFs, which track indices weighted according to the market capitalization of the underlying securities, PowerShares ETFs track customized indices constructed by using fundamental variables such as a company’s revenue, profitability or dividend history.

“The selected ETFs complement the actively managed fund component of the portfolios,” Ciampaglia says. “There is little overlap in holdings, and our correlation analysis shows the ETFs perform differently from the funds at various stages of the market cycle, resulting in more consistency in overall portfolio returns.”

Among the ETFs in the Invesco Trimark portfolios are PowerShares FTSE RAFI US 1000 and PowerShares FTSE RAFI Emerging Markets. Other ETFs in the portfolios include PowerShares Dividend Achievers Portfolio, PowerShares International Dividend Achievers Portfolio, and PowerShares Buyback Achievers Portfolio.

With AIM suffering a series of departures from its Canadian stable of fund managers, industry analysts note that the new product places a strong emphasis on the company’s global investment capabilities.

“The presence of the PowerShares ETFs is consistent with a broader strategy at AIM to leverage the global capabilities of the parent company, and not to be overly reliant on the Canadian team,” says Rudy Luukko, investment funds editor with Morningstar Canada in Toronto. “The turnover at the company has not gone unnoticed by the financial community.”

Dan Hallett, industry consultant and president of Windsor-based Dan Hallett & Associates Inc., says the new products are not suitable for the bulk of a client’s retirement assets, as they pay out all of the investor’s capital over the portfolio’s lifespan, which may not match the lifespan of the client.

Hallett says the portfolios ought to be used in conjunction with other retirement-income products that could be individually tailored to a client’s lifetime income needs.

“No one knows how long they will live and for how long they will need an income,” Hallett says. “The Invesco Trimark product is designed to provide a payout for a defined length of time. It is purely a vehicle to spit out cash flow, but there could be less cash flow than anticipated if the returns don’t keep up. While the product targets an increasing payout over time, which lends itself to inflation protection, customization is sacrificed for the sake of convenience.”

@page_break@However, Ciampaglia points out that while the portfolios’ annual distribution rate is determined by the company, clients may choose to reinvest distributions in additional portfolio units to take advantage of compounded growth. He also suggests that clients who wish to withdraw assets at their own pace and create a customized income stream could set up a systematic withdrawal plan that meets their individual needs, an alternative to taking the pre-set distribution from the Invesco Trimark portfolios and depleting all the assets by maturity. IE

BY JADE HEMEON