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 a segregated funds under the Insurance Companies Act (Canada).

Annually, SLGI Asset Management (SLGI)’s Multi-Asset Solutions Team reviews the long-term strategic allocations in the Sun Life Granite Income and Sun Life Granite Enhanced Income Segregated Funds (Granite Income Funds). In December 2023, following a review, SLGI announced changes to the Granite Income funds.

We've outlined the changes below.

Changes to the strategic asset allocation:

SLGI made several changes to the underlying asset class allocations of the Granite Income funds. The most significant of these are:

1. An increase to Canadian bonds.
2. A significant decrease to U.S. corporate bonds.
3. An increase to U.S. equity.
4. A decrease to listed real assets.

New Fund Additions:

Sun Life Risk Managed U.S. Equity Fund

Effective December 6, 2023, SLGI added the Sun Life Risk Managed U.S. Equity Fund as an underlying holding in both Granite Income funds. SLGI’s Multi-Asset Solutions team manages this new fund. It has a strategic allocation of 8% in the Granite Income Fund and 10% in the Granite Enhanced Income Fund.

The fund aims to capture most of the U.S. equity market return over a full market cycle with substantially less volatility. SLGI expects the fund to outperform the S&P 500 Index when markets decline but underperform when markets rise. It combines exposure to the U.S. equity market via exchange traded funds (ETFs) and futures with the use of option hedging strategies to achieve its objectives.

SLC Management Private Fixed Income Plus & Canadian Commercial Mortgage Funds

On November 30, 2023, SLGI added the SLC Management Short Term Private Fixed Income Plus Fund (“SLC ST PFI Fund”) as an underlying investment. The new fund has a 6% allocation in each of the two Granite Income funds.

SLGI also added the SLC Management Canadian Commercial Mortgage Fund to both Granite Income funds. SLGI’s initial allocation is small, at 0.4% in the Income fund and 0.8% in the Enhanced Income fund. SLGI intend to increase the allocation to 4% in each fund later in 2024.

SLGI believes private fixed income can provide higher yields than comparable public issues and the new funds will enhance diversification by accessing transactions and issuers that are not available in public markets.

Other changes to underlying funds:

SLGI also made a few additional changes to the underlying funds:

Added:

BMO Aggregate Bond Index ETF

iShares Core U.S. Aggregated Bond ETF

Sun Life MFS Low Volatility International Equity Fund

Removed:

iShares iBoxx $ Investment Grade Corporate Bond ETF

Sun Life Granite Tactical Completion Fund

Sun Life MFS Low Volatility Global Equity Fund

All changes to the Granite Income Funds were implemented in December 2023.

GRS Investment Solutions View:

We met with SLGI in January 2024 to discuss these changes.

Changes to asset class targets within bonds reflect SLGI’s revised market outlook in response to the new, higher interest rate environment. SLGI has reduced credit risk in the funds by reallocating from U.S. corporate

bonds to Canadian government and corporate investment grade bonds. Other changes in asset mix are primarily driven by the introduction of new fund strategies.

Changes to asset class targets within equities were driven by updated capital markets expectations. SLGI has a less favourable view of listed real assets (real estate and infrastructure) and Canadian equity in comparison to foreign equities.

The new Sun Life Risk Managed U.S. Equity Fund is a unique approach to gaining equity exposure. The use of futures and options allows the strategy to dynamically tailor the risk exposures with the objective of delivering much of the upside of equities with reduced downside risk. This fund was created by and will be managed directly by SLGI. SLGI’s back-testing and stress testing suggests that the strategy should be able to deliver on its objectives in most market environments and weather more extreme market events. SLGI selected the S&P 500 Index for the strategy due to its liquidity across ETF’s, futures, and options. SLGI has experience managing futures and options for Granite funds in other contexts such as tactical allocations and rebalancing.

We view the addition of private fixed income and commercial mortgages to the Granite Income Funds positively. The yield premiums and issuer diversification should improve return relative to risk in the fixed income component. Other bond fund changes reflect the implementation of the asset mix changes within fixed income.

The replacement of Sun Life MFS Low Volatility Global Equity Fund with Sun Life MFS Low Volatility International Equity Fund reduces U.S. equity exposure to offset the addition of the Sun Life Risk Managed U.S. Equity Fund.

The Sun Life Granite Tactical Completion fund provided SLGI with an efficient way to execute tactical asset class decisions across all Granite strategies. The structure of the Granite Income Funds has become increasingly different from other Granite strategies over time. SLGI consequently decided to remove this fund and implement tactical changes via the underlying funds.

We are comfortable with SLGI’s enhancements to the Granite Income Funds. Because it is new and has a novel approach, we will monitor the performance of the Sun Life Managed Risk U.S. Equity Fund closely over the coming months and through various market cycles. We will provide further updates as necessary.

Do you have to take any action?

You and your members don’t have to take any action as a result of these changes.

Questions?

Please contact your Sun Life Group Retirement Services representative