December 05, 2019

Updates to the BlackRock LifePath® Index Target Date Fund series

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 fund listed below, which is established as a segregated fund in accordance with the Insurance Companies Act (Canada).

BlackRock Asset Management Canada Limited (BlackRock) announced changes to the asset mixes of the BlackRock LifePath® Index Target Date Fund series (LifePath funds). These changes affect all funds in the series, particularly funds with a longer target date. 

BlackRock researched employee wage growth, income, consumption patterns and inflation. As a result, they’re lowering investments in assets that protect members from rising prices (“inflation-hedging assets”). These assets include:

  • Global Real Estate Investment Trusts (REITs)
  • Global Listed Infrastructure
  • Commodities

Instead, BlackRock will increase investments in growth assets, such as equity funds.

Their research shows that people early in their career see their wages grow at the same rate or faster than inflation.  This means they’d benefit the most from an investment strategy that seeks growth instead of protect against inflation.

Later in their career, people tend to rely more on savings and their wages may peak or even decline. At this stage, members notice the effect of inflation. Investments protecting them from inflation become more important.

BlackRock is not changing the overall level of equities and fixed income in the funds, called the glidepath of the LifePath funds. The starting equity point remains 100 per cent for funds with a later maturity date. The landing equity point at retirement remains 40 per cent.

As an example, for the asset mix that makes up the LifePath 2050 Fund, BlackRock is making the following changes:

  • Global REITs –18 % to 3-7 %
  • Commodities –3 % to 0-1 %
  • Global Listed Infrastructure –9 % to 0-5 %
  • Canadian Equity –17 % to 18-23 %
  • EAFE Equity –16 % to 20-24 %
  • US Large Cap Equity –28 % to 35-40 %

The ranges above allow BlackRock to adjust the asset mix based on market conditions. BlackRock started these changes in late March and will complete them by the end of 2019.

The GRS Investment Solutions team met with BlackRock. We discussed the changes and we’re comfortable with the research and the rationale for the reduced use of inflation-protecting assets in the funds.  We were surprised by the size of these changes. We see the new asset mixes as an acknowledgement that BlackRock placed too great an emphasis on inflation-protection previously. We will monitor the implementation of these changes in upcoming months.

About the BlackRock LifePath series of target date funds
The LifePath Funds invest in other funds, rather than directly in stocks or bonds. We call this “funds of funds.”

BlackRock manages an asset mix for the funds that changes over time. They invest in passive (index) funds or Exchange Traded Funds (“ETFs”). These attempt to match the financial market . BlackRock provides exposure to various asset classes including:

  • Canadian equities
  • US equities
  • International equities (developed and emerging markets)
  • Fixed income (domestic and foreign)
  • Real Estate Investment Trusts (REITs)
  • Commodities
  • Alternative investments
  • Cash and equivalents

BlackRock offers LifePath funds with target maturity dates in 5-year intervals (2020 to 2060, plus the Retirement Fund). Members select the portfolio that most closely aligns to their retirement date. Each fund gets more conservative as it moves closer to maturity. At maturity, each fund moves into the Retirement Fund. The Retirement Fund has a conservative asset mix designed to provide income and moderate long-term growth of money through retirement. 

How will this affect you and your plan members?
You or your plan members do not need to take action. 

Contact your Sun Life Group Retirement Services representative.