Core investment platform update: Enhancements to the Granite Series Target Date funds

November 16, 2015

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).

Following recent reviews of their funds, Sun Life Global Investments (Canada) Inc. (SLGI) has made enhancements to the Sun Life Financial Granite Series of Target Date Segregated Funds and Sun Life Financial Granite Series of Multi-Risk Target Date Segregated Funds (collectively, “Granite Target Date funds” ).

Summary of underlying fund additions
The following three funds were introduced in the second quarter of 2015.
1) Sun Life Sentry Global Mid Cap
2) Sun Life Sionna Canadian Small Cap Equity
3) Brandes U.S. Small Cap

The following two funds were first introduced on October 1, 2015, (small exposures) and will reach their full target allocations by the end of 2015. These two funds form part of the fixed income category of the Granite Target Date funds and are expected to provide additional yield opportunities.

4) Sun Life Private Fixed Income Plus
5) Sun Life Canadian Commercial Mortgages

About the New Underlying Funds

1) Sun Life Sentry Global Mid Cap

As part of the International Equity category, this fund seeks to achieve long-term capital appreciation primarily by investing directly in a diversified portfolio of medium capitalization global companies, or indirectly by investing in mutual funds (including exchange-traded funds) that invest in such securities.

Key considerations:

  • SLGI believes the Sentry Global Mid Cap Fund can offer the higher growth potential of smaller companies combined with the stability generally offered by larger companies. Similar to small cap companies, mid cap companies often have an entrepreneurial approach to doing business and, because of their size, are able to respond swiftly to change and capitalize on unfolding opportunities more readily than large cap companies. Furthermore, mid cap companies have already weathered the growing pains typically associated with small cap companies, and are thus less likely to be as impacted by market downturns.
  • Mid cap companies, in SLGI’s view, have entered the “sweet spot” of their business cycle; typically having evolved from the traditional small cap start-up phase, and have likely already endured a full market cycle.
  • Typically mid cap funds have been under-utilized within asset allocation models for both retail and institutional investors, which has led to reduced coverage and pricing inefficiencies within the mid cap market.

2) Sun Life Sionna Canadian Small Cap Equity

As part of the Canadian Equity category, the Sionna Canadian Small Cap Equity Fund seeks to achieve long-term capital appreciation primarily through exposure to equity securities of small to medium capitalization Canadian companies.

Key considerations:

  • Sionna targets companies with a market capitalization between $100 million - $1.5 billion and employs a value-based strategy investing in companies trading below their intrinsic value.
  • Generally, small cap securities have higher volatility than their large cap counterparts. As a result of this, Sionna seeks a greater margin of safety when investing to ensure the fund is properly rewarded for given levels of risk.
  • Additionally, the small cap market (both globally and domestically) is typically less efficient due to a lack of sell side coverage. This enables greater opportunities to add value.

3) Brandes U.S. Small Cap

As part of the U.S. Equity category, the Brandes U.S. Small Cap fund seeks to achieve long-term capital appreciation by investing primarily in equity securities of U.S. issuers with small equity market capitalizations at the time of purchase.

Key considerations:

  • Brandes is a value based manager, focusing on quality small capitalization companies within the U.S. market.
  • The small cap market (both globally and within Canada) is typically less efficient due to a lack of sell side coverage, which enables greater opportunity to add value.
  • Brandes uses a bottom up approach to equity investing, seeking companies that will achieve competitive long-term results.

4) Sun Life Private Fixed Income Plus

This fund seeks to achieve total return by providing income while preserving capital over the long term, through investing primarily in a diverse portfolio of private and public fixed income assets.

Key considerations:

  • This fund seeks to achieve total return by taking advantage of pricing inefficiencies often found in the private fixed income market.
  • Holdings will include investment grade credit, well diversified by issuer, sector and deal type.
  • This fund focuses on capturing excess yield, while maintaining a medium term duration.

5) Sun Life Canadian Commercial Mortgages

This Fund seeks to provide income while preserving capital over the long term, by investing primarily in a portfolio of first mortgage loans and construction financing loans secured by properties located in Canada.

Key considerations:

  • This fund invests primarily in a portfolio of fixed-rate first mortgage loans secured by high quality income-producing office, retail, industrial and multi-family rental properties located in Canadian urban markets.
  • The portfolio will consist of investment grade holdings, well diversified by geography and property type.
  • This fund focuses on capturing excess yield while maintaining a short duration to medium term duration.

Valuation and Liquidity of Private Asset Class Funds

The Sun Life Private Fixed Income Plus Fund and the Sun Life Canadian Commercial Mortgages Fund are managed by Sun Life Investment Management (SLIM). Sun Life has a long history of managing private asset class investments for its General Fund. SLIM was launched to bring private asset class capabilities to external investors.  

The use of private asset class funds differentiates the Granite Target Date Funds from other target date choices on the Core investment platform. These assets have the potential to provide higher yield, low correlation with traditional assets and potential diversification benefits.  

Because the holdings in the Granite Target Date funds are not publicly-traded, the funds are monthly valued, however, ‎given their relatively small exposure, these two funds will continue to be valued on a daily basis and accept daily plan member contributions and redemptions. For the purposes of establishing a daily Net Asset Value for the Granite Target Date Funds, investments in the funds’ underlying  funds will be carried at their previous month-end Net Asset Values. Allocation to these two private asset class funds, taken together, are not expected to exceed 10% of any of the Granite Target Date Funds.

Both SLIM and SLGI will closely monitor the liquidity needs of the Granite Target Date funds over time. In addition cash flows will be managed at the overall asset class level (i.e. fixed income) to ensure that target allocations are maintained within tolerances specified in the Granite Target Date funds investment guidelines.

Summary of underlying investment mandates in Granite Target Date / Multi-Risk Target Date funds

The following table shows the updated underlying mandates used within the Granite Target Date funds.

Sun Life Granite Target Date / MRTD Funds  - underlying funds  Comments
Fixed Income
Sun Life Financial Money Market  
Sun Life BlackRock Canadian Universe  
Sun Life Financial Universe (Beutel Goodman)  
Templeton Global Bond  
RBC Global High Yield Bond  
Sun Life Private Fixed Income Plus New addition (Q4 2015)
Sun Life Canadian Commercial Mortgage New addition (Q4 2015)
Canadian Equity
Beutel Goodman Canadian Equity  
MFS Canadian Equity Growth  
Sun Life BlackRock Canadian Composite Equity  
Sun Life Sionna Canadian Small Cap Equity New addition (Q2 2015)
U.S. Equity
Sun Life MFS U.S. Growth  
TD Hedged Synthetic U.S. Equity Index  
Brandes U.S. Small Cap New addition (Q2 2015)
International Equity
Sun Life Sentry Global Mid Cap New addition (Q2 2015)
Sun Life MFS International Value  
Sun Life MFS International Growth  
Sun Life Schroder Emerging Markets  
Specialty Equity
Lazard Global Listed Infrastructure  
Invesco Global Real Estate  

 

Updated Benchmark and Target Allocations
The following tables show the updated benchmarks for the Granite Target Date funds.

SLF Granite Multirisk Conservative Portfolios Benchmark Weights

SLF Granite Multirisk Moderate Portfolios Benchmark Weights

SLF Granite Multirisk Aggressive Portfolios Benchmark Weights

Key notes/changes:

The glidepath (equity/bond asset mix level) for the funds did not change.  Changes were only made within the various asset classes due to the addition of the new funds.

  • SLF Granite Retirement Fund: Added a 0.50% strategic position in each of the Canadian Small Cap Equity and U.S. Small Cap Equity funds and a 1% strategic position in Global Mid Cap Equity. A 5% strategic position in each of the Private Fixed Income and Canadian Commercial Mortgage funds will be added in late 2015.
  • SLF Granite 2055 Moderate Fund: Strategic weight additions are double those of the SLF Granite Retirement Fund: 1% Canadian Small Cap Equity, 1% US Small Cap Equity and 2% Global Mid Cap. Private Fixed Income and Canadian Commercial Mortgages will be added to the portfolio in late 2015 with a weighting of 2% each.
  • For portfolios in between SLF Granite Retirement Fund and SLF Granite 2055 Moderate, the strategic weights of the Canadian Small Cap Equity, U.S. Small Cap Equity and Global Mid Cap Equity funds will increase in a linear fashion. For the Private Fixed Income and Canadian Commercial Mortgage funds, these strategic weights will decrease in a non-linear fashion.
  • These additional strategic weights were taken from their respective regional asset classes (Canadian Equity, US Equity, International Equity and Canadian Bonds).

Glidepaths available in the Granite Target Date fund series

 

Glidepath

Updated Statement of Investment Policies (SIPs)
The updated SIPs dated September 30, 2015 are now available on the plan sponsor site at www.sunlife.ca/sponsor. When logged into the website, under the Administration and reporting tab, select Group Retirement Services, then on the top navigation menu select Investments >Governance reports.

Background
The Sun Life Financial Granite series of Target Date Segregated Funds include the Granite Target Date and Granite Multi-Risk Target Date Funds. The Granite Multi-Risk Target Date Funds offer three distinct glidepaths based on risk tolerance: Conservative, Moderate and Aggressive. The Granite Moderate glidepath is also the glidepath for the Sun Life Financial Granite Target Date Segregated Funds. Each Granite Target Date fund series is available in 5-year increments (2015 to 2055) and includes the SLF Granite Retirement fund as the most conservative investment option.

The Granite Target Date Funds are designed to deliver broad diversification by asset class, geographic region, industry, manager and style, while also incorporating non-traditional asset classes such as listed real estate and infrastructure, and a mix of passive and active investments.

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