Flexible fund mandates, strong stock-picking or both were the main reasons some families of segregated funds outperformed in 2013.
The top five performers among the seg fund families, which tended to benefit from those two factors, were separated by less than seven percentage points, according to data from Toronto-based Morningstar Canada.
At the top of the heap was the seg fund family of Winnipeg-based Great-West Life Assurance Co. (GWL), with 69.8% of long-term seg fund assets under management (AUM) in the top two performance quartiles; the fifth-place finisher, Montreal-based Standard Life Assurance Co. of Canada’s seg fund family, had 63.1% in the top two quartiles last year.
The seg fund families of Kingston Ont.-based Empire Life Insurance Co. ranked second (67.8%); those of Manufacturers Life Insurance Co. (Manulife) of Waterloo, Ont., ranked third (64.5%); and those of Toronto-based Canada Life Assurance Co. placed fourth (64.4%).
Having a flexible seg fund portfolio mandate was a huge factor in outperformance because U.S. equities did much better than Canadian stocks in 2013, which gave the advantage to Canadian equity funds that were able to have significant exposure to foreign equities.
Similarly, bond funds able to have a good portion of high-yield debt tended to outperform “pure” bond funds.
Meanwhile, restrictive mandates pulled down the performance of other fund families. This was vividly clear in the divergent results for the three seg fund families of the subsidiaries of Great-West Lifeco Inc. in Winnipeg – GWL, Canada Life and London, Ont.-based London Life Insurance Co.
Although GWL and Canada Life ranked in the top five, London Life had only 34% of long-term seg fund AUM in above-average performing funds.
London Life’s seg fund family, the biggest of the three GWL firms with $26.6 billion in AUM as of Dec. 31, 2013, generally has more restricted mandates than GWL’s and Canada Life’s funds, says George Turpie, senior vice president for investment funds product pricing and market development, wealth management, for all three subsidiaries.
London Life’s Canadian equity funds invest mainly in Canadian stocks, and its bond funds don’t include much high-yield debt. But London Life has a large number of funds, so advisors and/or clients can combine them to create personalized portfolios. This is the same approach that the big banks take – and their mutual fund families had a similar, relatively weak performance relative to their peers in 2013.
London Life intends to stick with this approach, says Turpie, but is broadening its product offerings. For example, the firm launched high-yield and corporate bond funds last July to give clients access to these higher-yield, albeit riskier assets.
The other very big fund family – Manulife’s – has more flexible mandates. For example, Manulife’s biggest seg fund, Manulife Monthly Income High Income Fund ($5.8 billion in AUM as of Dec. 31) can have up to 30% foreign equities exposure, and it maximized this last year, says Steve Parker, Manulife’s assistant vice president, guaranteed investment products, investments and insurance.
For Empire Life, the main reason for its strong performance was stock-picking, says Gaelen Morphet, Empire Life’s senior vice president and chief investment officer. However, Empire Life also has flexible Canadian equity seg fund mandates and raised the foreign equities portion in its Canadian equity funds. Empire Life doesn’t hold any high-yield issues in its bond funds, though.
As for Standard Life, its performance was the result of picking good sectors and individual stocks, says Patrick Murray, investment specialist with Standard Life. For example, the firm’s Canadian equity funds were very low in materials stocks, which had an average decline of 29% in 2013. Murray notes that Standard Life Ideal Canadian Dividend Fund was allowed to invest in foreign equities in 2011, which contributed to its first-quartile performance last year.
An improving seg fund family is that of Industrial Alliance Insurance and Financial Services Inc. (IA) in Quebec City, with 42.9% of its long-term seg fund AUM in the top two performance quartiles, up from 38.6 in 2012 and 33.3% in 2011.
A major factor in this improvement, says Pierre Payeur, IA’s director of fund management, was the arrival in late 2012 of Clement Gignac, IA’s chief economist.
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