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The ready-made solution evolution

Sun Life's new income portfolios another step in giant's bid for more investment dollars

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Sun Life Financial Inc. president and chief executive officer Dean Connor. Business has been strong, with $6.4 billion currently under management.

AARON LYNETT / POSTMEDIA NEWS ARCHIVES Enlarge Image

Sun Life Financial Inc. president and chief executive officer Dean Connor. Business has been strong, with $6.4 billion currently under management.

Canada's mutual fund universe is big enough already, but that hasn't stopped many of the largest financial institutions from squeezing in a few more funds in an effort to win over our money.

One of the more notable arrivals in the last few years is Sun Life Global Investments -- a subsidiary of Sun Life Financial -- which rolled out 12 funds in 2010 when few investors had much appetite to buy what mutual fund firms were selling.

Yet with the full weight of Sun Life Financial's several-thousand-strong sales force and other adviser distribution channels, business has been good.

"We started with zero assets under management and now we have $6.4 billion and the majority of those assets have gone into our solution-type products," says Rick Headrick, president of Sun Life Global Investments, adding these funds are separate from the segregated mutual funds sold by the insurance arm of the firm

Today, Sun Life Global Investments has more than 30 funds to from which to choose, and among them is a pair of recently launched income fund of funds. These are one-stop, pre-made investment portfolios aimed at the demographically fat and financially juicy boomer segment.

Indeed, this new line called Sun Life Managed Income Portfolios are quintessential "solution-type products."

Both the Sun Life Managed Income Portfolio and the Sun Life Managed Enhanced Income Portfolio are built for new retirees in need of steady investment income.

"What we're trying to accomplish in these portfolios is to give people a diversified income stream," says Sadiq Adatia, chief investment officer with Sun Life Global Investments.

Made up of mutual funds that invest in Canadian and foreign dividend equities, real estate and infrastructure, U.S. corporate bonds and emerging-market debt, these fund of funds aim to provide a sustainable income stream in an environment where fixed-income returns are low and equity markets are volatile, he adds.

Launched at the start of the year, the Sun Life Managed Income Portfolio pays a distribution of 4.8 per cent and the Sun Life Managed Enhanced Income Portfolio pays six per cent. Both figures are based on estimated returns on the portfolios, so there is a risk investors could see a return of their capital to achieve the monthly payouts, which would reduce the amount investors earn as income in future years.

But Adatia argues Sun Life Global Investments' management is confident the yields can be achieved because 80 per cent of the distributions come from dividend and interest earnings with the remainder expected to be made up from capital gains.

"The industry average is around 50 per cent of the distribution is made from the yield," he says. "That gives us a lot of room, but if we get to a point where markets aren't strong enough to allow us to achieve the distribution on yield and returns, the remainder would be a return of an investor's capital."

While new to Sun Life's fund lineup, these investments aren't breaking new ground. Ready-made balanced portfolios are well-established.

But what distinguishes them from others is the portfolios contain funds managed by some of the best in the business, Adatia says.

"Our approach is to find managers in each of these asset classes that are excellent at what they do."

Indeed, these portfolios do contain funds highly rated by Morningstar.ca, a leading online investment news portal that follows Canada's mutual fund industry.

For example, the Sun Life Managed Enhanced Income portfolio includes RBC's Global High Yield Bond fund, Dynamic's Equity Income fund and Sentry's Real Estate Investment Trust fund -- all of which have four-out-of-five-star ratings from Morningstar.ca.

But besides partnering with leading fund companies across North America, Sun Life Global Investments also offers unique funds that are the result of its acquisitions, including McLean Budden, a leading Canadian investment firm, purchased in 1997.

Investors also gain access to MFS -- formerly known as Massachusetts Financial Services -- which has been around since 1924 and is credited with launching the world's first mutual fund. Sun Life purchased it in 1982.

The two companies are now merged to form MF McLean Budden -- with about $380 billion under management -- providing Sun Life Global Investments with a number of unique Canadian and global investment opportunities, Headrick says.

Morningstar.ca editor Rudy Luukko has followed the company's metamorphosis in recent years, once referring to it as "Spectrum Mutual Funds, the sequel."

Back in 1987, Sun Life launched Spectrum Mutual Funds, but it eventually sold all but a 30 per cent stake of it in 2002. Spectrum then became CI Investments -- one of the largest fund companies in Canada -- and in 2008, Sun Life sold its remaining stake in CI to the Bank of Nova Scotia.

Luukko says Sun Life's recent decision to merge MFS and McLean Budden makes sense given the current fund-industry environment.

"It gave the new Sun Life family a lot more heft," he says. "The other observation is through MFS, the Sun Life organization has a great deal of global-investment expertise, including in the U.S."

Headrick says after Spectrum was sold, MFS management expertise wasn't available to Canadian investors until Sun Life Global Investments began offering them in 2010.

That said, the latest income fund of funds offerings hold only one MFS McLean Budden fund.

Adatia says as the umbrella manager of the new-income portfolios, his job is to find the best funds available to provide a steady income for investors -- whether they're Sun Life-owned funds or not.

More than anything, the new portfolio funds are a welcome addition for Sun Life's mutual fund arm because income funds are one of the few growing mutual fund categories in Canada.

"These are more mainstream offerings as opposed to anything specialized or risky, but that's not a bad thing," Luukko says. "I think that is what most investors want and need."

If anything, Sun Life Global Investment's income portfolios provide another choice among many for Canadian investors -- and that's not a bad thing.

"Competition is healthy, and Sun Life's ability to aggregate portfolio-management expertise and bring that to the retail market adds to the competitive mix in the adviser channel," Luukko says. "On balance, it's a positive particularly for investors who need and want advice and are prepared to pay for it."

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QUICK FACTS

Going it alone: All of Sun Life Global Investments' funds, including their most recent Sun Life Managed Income Portfolios, are available through self-directed, discount brokerages as well as Sun Life's advisory sales forces, but Morningstar.ca's Rudy Luukko says investors going it on their own should know they're still paying an embedded cost for advice when they buy those funds without an adviser. "If you buy these products through a discount brokerage and there's embedded compensation that assume advice, you're not really getting your money's worth."

A look at the fund of funds... by the numbers:

Sun Life Managed Enhanced Income Fund:

-- Launched in January;

-- Portfolio includes RBC Global High Yield Bond, Guardian Global Dividend Growth, Sentry Infrastructure, Dynamic Equity Income, Sentry REIT, Blackrock's iShares iBoxx $ Invest Grade Corp Bond and Dynamic Energy Income;

-- 60 per cent stock; 40 per cent bonds;

-- Six per cent distribution yield;

-- Management cost 1.8 per cent (Fund is less than a year old so no management expense ratio -- MER -- is available);

-- Minimum initial investment $500; $50 subsequent; RRSP-eligible;

-- Growth of $10,000 since January 1: $10,429;

-- Growth of $10,000 for benchmark since Jan. 1: $10,512 (60 per cent MSCI World, 40 per cent Barclays Cap);

Sun Life Managed Income Portfolio

-- Launched in January;

-- Portfolio includes Blackrock's iShares iBoxx $ Invest Grade Corp Bond, Guardian Global Dividend Growth, Sun Life MFS MB Canadian Bond, Sentry Infrastructure, Dynamic Equity Income, Sentry REIT, RBC Global High Yield Bond;

-- 50 per cent bonds; 50 per cent equities;

-- 4.8 per cent distribution yield;

-- Management fee 1.5 per cent (Fund is less than a year old so no MER is available);

-- Minimum initial investment $500; $50 subsequent; RRSP-eligible;

-- Growth of $10,000 since January 1: $10,394;

-- Growth of $10,000 for benchmark since Jan. 1: $10,512 (60 per cent MSCI World, 40 per cent Barclays Cap).

-- Sun Life Global Investments, Morningstar.ca and Lipper

Republished from the Winnipeg Free Press print edition May 18, 2013 B12

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