Sun Life Financial adds TDAM U.S. Market Index Fund (Registered) to DC Core and DB investment platforms

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).

Effective immediately, Sun Life Financial has added the TDAM U.S. Market Index Segregated Fund (Registered) to our DC Core investment platform and DB investment platform. This addition follows TD Asset Management’s (TDAM) recent launch of a registered version of their U.S. Market Index fund. The new Fund is not subject to United States withholding tax on U.S. source dividend and interest income.

About the fund
This fund is the registered assets-only version of a fund which already exists on both the DC Core and DB investment platform; the TDAM U.S. Market Index Segregated Fund (note: the non-registered fund will be removed from the DB investment platform). Given that the new fund accepts registered assets only, it is not subject to withholding tax on U.S. dividends and is therefore expected to have a tight tracking to the S&P 500 Total Return Index, which it is replicating. The Fund is designed for investors seeking long-term benchmark returns and exposure to a broad base of U.S. equities.

The benchmark for the existing TDAM U.S. Market Index fund is the S&P 500 Index Net of dividends, using a 30% withholding tax rate. This benchmark uses the maximum possible U.S. withholding tax rate of 30%, while the Fund typically only experiences a 15% tax rate, therefore TDAM estimates that this results in the fund exhibiting a positive tracking error bias (+0.25% to +0.45% per annum).

Other U.S. Equity Index fund options on Sun Life’s DC Core investment platform
Sun Life Financial also offers three other U.S. Equity Index funds on the Core investment platform: two managed by BlackRock and a third managed by TDAM. Similar to the two versions of the TDAM U.S. Market Index fund now available, BlackRock Asset Management also offers the following two versions:

  • The BlackRock U.S. Equity Index Fund uses a full index replication strategy which remains un-hedged to the foreign currency exposure. There are two versions of this fund available, both of which use the S&P 500 Total Return Index as a benchmark:

I.

BlackRock U.S. Equity Index Fund: available for both registered and non-registered plans and is subject to withholding tax on U.S. source income (dividends) which causes higher tracking versus benchmark. BlackRock expects this fund’s return to differ by -0.40% per annum vs. the benchmark over a four-year period.

II.

BlackRock U.S. Equity Index Fund (Registered)*: This fund is not subject to withholding tax on U.S. source income (dividends) and is therefore expected to track its benchmark more closely.
  • Lastly, we offer the TDAM Hedged Synthetic U.S. Equity Index Segregated Fund**. The fund invests in Canadian-issued debt securities and S&P 500 Index futures contracts. The debt may consist of federal and provincial treasury bills, commercial paper, bankers’ acceptance, the Emerald Canadian Short-Term Investment fund and other short-term obligations. No leverage is used. Its benchmark is the TDAM S&P 500 Hedged (C$).

We encourage you to consider the availability of these different versions of U.S. Equity funds in your plan. If you wish to transfer registered assets from a U.S. equity index fund which accepts non-Registered assets to the Registered-only version (which is not subject to withholding tax), you may add the Registered-only fund in your plan and map registered assets to it, without tax consequences.

Investment Guidelines and Morningstar® investment reporting for the new fund is now available on the plan sponsor site.

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

* This fund is also available on Sun Life’s DB investment platform
** A registered only version of this fund is also available on Sun Life’s DB investment platform.