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).
In February 2022, Fidelity Investments Canada (Fidelity) announced that they are making changes to the fixed income component of the Fidelity ClearPath Target Date Fund series (ClearPath). Fidelity is making these changes to improve the diversification of the fixed income component and provide portfolio resiliency in various market environments, including periods of inflationary and deflationary stress.
Summary of Changes
Asset class additions/Increases
- For all the ClearPath funds, Fidelity is adding a significant allocation to global developed markets sovereign bonds.
- For all the ClearPath funds, Fidelity is adding an allocation to long-term Canadian government bonds.
- For ClearPath funds nearing and in retirement, Fidelity will be increasing allocations to inflation-linked bonds. They achieve this through the addition of global inflation-linked bonds (and small adjustments to the allocation to Canadian real return bonds).
Asset class reductions:
- For all the ClearPath funds, Fidelity is significantly reducing exposure to Canadian investment-grade debt.
- For ClearPath funds nearing and in retirement, Fidelity is significantly reducing exposure to Canadian money market securities.
To implement the asset class changes, Fidelity is adding the following funds to ClearPath:
- Fidelity Canadian Government Long Bond Index Institutional Trust
- Fidelity Global Developed Markets Sovereign Bond Index Institutional Trust
- Fidelity Global Inflation-Linked Bond Index Institutional Trust
These new funds are passively managed. Fidelity will hedge all foreign bond exposures to the Canadian dollar. There are no changes to the equity levels along the glidepath or the asset mix within equities.
Here is a graphic depicting the new allocations across the glidepath:
Glide path and strategic asset allocation update
The following exhibit provides a visualization of the asset mix changes across the various target date fund years. As seen below, the changes to the longer dated funds are minimal. The changes to shorter dated funds are more impactful.
Fidelity expects to complete the transition to the new allocations by the end of Q2 2022.
Plan members in a non-registered plan, will likely experience a capital gain or loss when the transition occurs. Sun Life will report any capital gains or losses on the segregated fund tax slips. The members must report capital gains or losses on their tax return in the year the transfers occur. We recommend plan members talk with a tax professional for advice specific to their situation if they have money in a non-registered (taxable) plan.
GRS Investment Solutions met with Fidelity to review the changes. We are comfortable with the changes and view the proposed adjustments positively. The changes to the fixed income component should improve diversification. Resilience of the portfolios to both inflationary and deflationary market regimes will also be improved. This in turn should improve the likelihood of investors maintaining their standard of living in retirement across different market scenarios. The use of passive funds in the new fixed income allocations is consistent with our view. We believe there is little value-added potential of active management in these asset classes. Fidelity will continue to actively manage the strategic asset mix. They will look to opportunistically take advantage of market inefficiencies and mispricing as it arises. We will monitor the implementation of the changes and provide further updates if needed.
Please contact your Sun Life Group Retirement Services representative.