BlackRock Canada expanding into mutual funds

The preliminary filing didn’t specify what management fees will be charged and what advisor compensation will be paid by BlackRock, which will distribute its products through brokers and dealers. But the use of low-fee ETFs as the underlying assets for BlackRock’s mutual funds should translate into costs that are below average compared to competing funds sold through third-party brokers and dealers.

Noel Archard, head of BlackRock Canada, said the company’s pending product launches are in response to demand from the advisor community, and will give investors additional choice in getting access to BlackRock’s investment expertise. He says BlackRock’s product strategy for mutual funds is based on low costs, diversification, simplicity and transparency.

Two retail series will be offered, according to the preliminary filing. For the optional-load Series A, investors can opt for either an initial sales charge (often waived) or else a low-load deferred sales charge option. There are no details available yet on the length of the redemption-fee schedule for the low-load option.

Financial advisors and discount brokers that sell Series A will be paid trailer fees on an ongoing basis, for as long as the investor stays in the fund. These fees, which will be paid by BlackRock but ultimately passed on to investors, will be disclosed in the final prospectus.

The other retail series is Series F, which pays no compensation to distributors and is designed for fee-based accounts. For both Series A and Series F, there is a provision for a minimum-balance requirement. If the dollar value of an investor’s account fell below $1,000, BlackRock would have the right to require investors to redeem their units.

When launched, subject to regulatory approval, the BlackRock mutual funds will collectively cover a wide range of investment objectives. The most aggressively positioned fund will be BlackRock MaxGrowth Portfolio investing entirely in equity ETFs, followed by the equity-heavy BlackRock Growth Portfolio which will seek to provide long-term capital growth and modest current income. The growth portfolio will be 75% weighted in equities.

BlackRock Balanced Portfolio will have a 60-40 split in favour of equities, while BlackRock Conservative Portfolio will have only 40% equity exposure. Meanwhile, there will be a 50-50 split between equities and fixed income in BlackRock Diversified Monthly Income, whose objectives will be to provide a consistent monthly cash distribution and modest long-term capital growth.

For more risk-averse investors, BlackRock Defensive Portfolio will emphasize safety and fixed income, with equities held to about 25% of the portfolio. The most conservative fund will be BlackRock Security Portfolio, investing entirely in fixed income.

BlackRock Canada and its sub-advisor and corporate affiliate, San Francisco-based BlackRock International Trust Co. N.A., will have the flexibility to change the underlying funds without notice, but would have to stay true to the fund’s objectives and rebalance the strategic asset mix. According to the prospectus, the funds will be rebalanced to keep the holdings within plus or minus 10% of the target allocation. (The two BlackRock companies are subsidiaries of New York-based BlackRock Inc. BLK .

Balanced products are nothing new for BlackRock Canada. The company currently manages seven multi-assets ETFs listed on the Toronto Stock Exchange, with a combined total of $924 million in assets. But these funds can be bought or sold only through brokers that have access to the TSX.

Archard noted that even if retail brokers have access to ETFs, their clients may prefer mutual funds. For mutual fund dealers who aren’t allowed to offer ETFs, BlackRock’s expansion will enable them to offer new low-cost products. Though BlackRock has recommended to securities regulators that mutual fund dealers be permitted to sell ETFs, this isn’t about to happen any time soon.

Meanwhile, BlackRock will continue as a sub-advisor to Sun Life Global Investments, for which it is the portfolio manager of two mutual funds: Sun Life BlackRock Canadian Equity and Sun Life BlackRock Canadian Balanced.

	BlackRock’s upcoming mutual funds
	Fund	Category	Target Mix
	BlackRock MaxGrowth Portfolio	Global Equity	Canadian Equity international Equity U.S. Equity	45% 40% 5%
	BlackRock Growth Portfolio	Global equity balanced	Canadian equity Canadian fixed income international equity U.S. equity	40% 25% 25% 10%
	BlackRock Balanced Portfolio	Global neutral balanced	Canadian fixed income Canadian equity international equity U.S. equity	40% 30% 20% 10%
	BlackRock Conservative Portfolio	Canadian neutral balanced	Canadian fixed income Canadian equity international equity U.S. equity	60% 20% 10% 10%
	BlackRock Diversified Monthly Income Portfolio	Canadian fixed-income balanced	Canadian fixed income Canadian equity U.S. fixed income	50% 35% 10%
	BlackRock Defensive Portfolio	Canadian fixed-income balanced	Canadian fixed income Canadian equity U.S. equity international equity	75% 15% 5% 5%
	BlackRock Security Portfolio	Canadian fixed income	Canadian fixed income U.S. fixed income international fixed income	75% 20% 5%