The segregated fund families that performed best in 2010 rose to the top on the strength of their exposure to the recovering equities market and the expertise of outside fund managers.

The top performer, Mississauga, Ont.-based Primerica Life In-sur-ance Co. of Canada, had 80.1% of its long-term assets under management in the first or second performance quartiles in 2010. The company attributes its strong showing to the fact that it had more equities in its Asset Builder funds than do many of the other 2020+ target funds to which Primerica’s funds are compared. Although the performance of the equities portion of Primerica’s funds was generally nothing to write home about, other 2020+ target funds had greater allocations of lower-return fixed-income.

Michael Ondercin, assistant vice president, guaranteed investment products, with Manulife Financial Corp. in Waterloo, Ont., attributes the second-place finish of his firm’s seg funds (71.6% of long-term AUM in the top two quartiles) to the success of Manulife’s two most popular and biggest funds — Manulife GIF Monthly High Income Fund and Manulife GIF Fidelity Canadian Asset Allocation Fund — and to having top outside managers, including Dynamic Funds Ltd. and CIBC Asset Management/CIBC Securities Inc., whose fund families performed well in 2010. (All companies are based in Toronto unless otherwise mentioned.)

As well, five of Manulife’s six Simplicity portfolio funds had above-average performance, which Ondercin attributes to changes made in the managers and in the amount each handles.

Although third-place Trans-america Life Canada (with 68.1% of AUM in the top two quartiles) also benefited from the expertise of outside managers last year, its in-house fixed-income money managers focused on corporate bonds, says Geraldo Ferreira, vice president, investment products development and management, with both Transamerica and AEGON Fund Management, which took advantage of the narrowing of spreads between corporate and government bonds.

Ferreira also says that “we’ve definitely seen an improvement in the funds’ relative performance” in Transamerica’s TOPs portfolios since 2009, when the firm eliminated U.S. and international equities exposure from all its portfolios, replacing them with global equities exposure. This has resulted in more frequent and greater changes in underlying country allocations as the fund managers change their allocations in response to shifts in global economic and financial conditions.

Other seg fund families that had solid performances in 2010 — such as Equitable Life Insurance Co. of Canada of Waterloo; Desjardins Financial Security of Quebec City; and the three Great-West Lifeco Inc. families of Canada Life Insurance Co. and Great-West Life Assurance Co. of Winnipeg and London Life Insurance Co. of London, Ont. — also benefited from the skills of outside fund managers.@page_break@Seg fund families that didn’t fare well tended to be conservative. This was the case for SSQ-Société d’assurance vie of Quebec City, which had just 38.2% of long-term AUM in the top two quartiles. SSQ’s fund managers had thought that equities markets would run out of steam in 2010, says Marie Lamontagne, SSQ’s first vice president, communications and institutional marketing, and so started the year in a more defensive position than many other seg fund managers.

The underperformance of Kingston, Ont.-based Empire Life Insurance Co. (27.% of long-term AUM in the top two quartiles) can be attributed to its funds being underweighted in the top-performing asset classes. Empire Life vice president and chief investment officer Gaelen Morphet says the funds were underweighted in materials, had little small-cap exposure and had less exposure to U.S. and international equities than their peers. She also notes that the funds’ duration in fixed-income was short, which hurt through much of 2010 but is serving inves-tors well so far this year.

Empire Life also has brought small-cap management in-house and added U.S. exposure in Empire Elite Equity Fund, the firm’s second-largest fund ($808.9 million in AUM as of Dec. 31, 2010). Morphet is comfortable with this when the Canadian dollar is around par with the U.S. dollar, as there is less risk of the loonie rising when it’s already high.

Quebec City-based Industrial Alliance Insurance and Financial Services Inc. ’s weak performance (42.1% of long-term AUM in the top two quartiles) was the result of “a fair amount in bonds, and in value equities,” says Françoise Lalande, IA’s vice president for portfolio management, who adds that there also wasn’t much small-cap exposure. IA fund managers started the year long in bonds and then sold off too soon. They were also neutral on corporate bonds, which had much better returns than government bonds.

Montreal-based Standard Life Assurance Co. of Canada’s seg funds did better than in 2009, but still only had 32.4% of long-term AUM in the top two quartiles. These funds suffered, says Jay Aizanman, vice president, national accounts, marketing and distribution, because good-quality companies weren’t rewarded in 2010.

However, he believes the market is now going to “pay for the companies with stable consistent growth with good leadership positions in their sectors that we tend to buy. My gut feeling is that the easy money has been made.”

CI Investments Inc. ’s seg fund family also didn’t do well (29.7% of long-term AUM in the top two quartiles). A major reason was the third-quartile performance of CI Harbour Growth & Income GIF Class B Fund, which had $9.2 billion in AUM as of Dec. 31 — almost half of CI’s long-term seg fund AUM. IE