Changes to PH&N funds

September 8, 2014

Plan sponsors may wish to consider whether this investment news has any implications for the investment options available within their plans. Sun Life Assurance Company of Canada purchases units of the funds listed below, which are established as segregated funds in accordance with the Insurance Companies Act (Canada).

Phillips, Hager & North Investment Management Ltd. (PH&N) has announced a number of changes to the funds offered on Sun Life Financial's DC Core investment platform and DB investment platform. Included in the changes announced, was the replacement of Sky Investment Counsel (Sky) - a sub-advisor for PH&N on multiple funds - with RBC Global Asset Management’s (RBC GAM) London-based Global Equity team. PH&N believes that these changes improve expected long-term risk and return.

Summary of additional changes

PH&N Overseas Equity Fund:
In mid-August 2014, PH&N replaced Sky, the sub-advisor for the fund, with an international equity portfolio managed by the RBC GAM Global equity team.

PH&N Global Equity Fund:
Starting in mid-August, PH&N is replacing the underlying allocations to the PH&N US Equity Fund and PH&N Overseas Equity Fund with a single global equity portfolio managed by the RBC GAM Global Equity team.

The mandate and guidelines for the Overseas and Global Equity funds will not change as a result of these events.

PH&N Balanced Pension Trust (BPT):
The below changes to BPT will take effect on September 30, 2014.

  1. PH&N will replace the allocations to the PH&N U.S. Equity Fund and PH&N Overseas Equity Fund (previously sub-advised by Sky) with a single allocation to the RBC Global Equity Focus fund, managed by RBC GAM. The allocation to the RBC QUBE Global Equity Fund will remain in place. Going forward, the global equity allocation will be made up of these two global equity funds (50/50 split).
  2. The benchmark for the global equity allocation in the BPT will change from the MSCI World ex-Canada Index to the MSCI World Index.
  3. PH&N is adding an allocation to emerging market equities using the RBC Emerging Market Equity (EME) Fund that is sub-advised by the EME team at RBC GAM.
  4. The overall foreign equity allocation in the BPT will increase from 25% to 30%, through a 4% allocation to EME and a 1% increase in the global developed market equity allocation. The target Canadian equity allocation within the fund will decrease from 35% to 30%.
  5. The strategic allocation to cash will be reduced from 5% to 2%, while the allocation to bonds will increase from 35% to 38%.
  6. The guidelines for the fixed income component of the BPT will be amended to allow investments in high yield bonds in the future. While the change in guidelines will be effective September 30, 2014, PH&N will not be initiating the allocation to high yield bonds at this time. The structure of the allocation to high yield bonds will be determined at a later date.

The current and new target allocations of the BPT are listed in the table below. Note that the overall target asset mix remains 60% equity, 40% fixed income.

Underlying Fund Benchmark Current target allocation New target allocation
(effective September 30, 2014)
RBC Institutional Cash FTSE TMX Canada 30-Day T-Bill Index 5.00% 2.00%
PH&N Bond * FTSE TMX Canada Universe Bond Index 35.00% 38.00%
PH&N Canadian Equity S&P/TSX Capped Composite Index 35.00% 30.00%
RBC Global Equity Focus MSCI World Index 0.00% 13.00%
RBC QUBE Global Equity MSCI World Index 12.50% 13.00%
RBC Emerging Market Equity MSCI Emerging Market Index 0.00% 4.00%
PH&N U.S. Equity MSCI World ex Canada Index 6.25% 0.00%
PH&N Overseas Equity
(previously sub-advised by Sky Investment Counsel)
MSCI World ex Canada Index 6.25% 0.00%

* Subject to change when high yield allocation is introduced.

PH&N's Statement of Policies and Procedures for the above funds will be updated by the end of Q3, 2014 to reflect the changes.

How do these changes this affect you and plan members?
There is no impact to, or action required by you or plan members.

Background

RBC GAM’s London based Global equity team is a ten person team led by Habib Subjally. The team joined RBC GAM in January 2014 from First State Investments (UK) Limited, where the majority of the team had been working together for almost seven years. The team’s seven analysts are organized along global industry lines, with an objective of identifying the businesses that generate substantial shareholder wealth over time. In addition to fundamental research, the team has two dedicated risk managers who aim to ensure that returns are driven by intended risks and exposures. Previously, the team managed both international and global equity mandates.

Defining characteristics of the new global equity team include:

  • More of a core style, as compared to the value style adhered to by Sky.
  • A more collaborative decision-making process.
  • More explicit risk management.
  • Targeting significantly less tracking error.
  • Environmental, social and governance (ESG), considerations are explicitly integrated into the investment process.

Sun Life Financial Group Retirement Services' Investment Solutions Team, along with members of the International Investments Centre, met with PH&N/RBC GAM on August 6, 2014, to discuss the above changes in detail. In particular, Jeremy Richardson, a Senior Portfolio Manager on the RBC GAM Global Equities team, shared the background, investment process and risk management process. We are reassured by the fact that the emphasis of the funds continue to be on quality companies, which are identified through a fundamental, bottom-up and research-driven process. We will continue to monitor these changes closely and provide updates as necessary.

Questions?
Please contact your Sun Life Group Retirement Services representative.