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Mutual Fund News

Investment strategy enters a new life cycle

Firms rush to offer a class of funds that evolve over time to match investors' needs

MUTUAL FUNDS REPORTER

Competition is heating up in the life cycle fund business.

Over the past year, five fund companies have launched rival products that together have amassed more than $623-million in retail sales to date. Each life cycle fund is structured with a specific investment horizon, from five to 35 years. As the fund draws closer to maturity, the asset mix is shuffled to preserve capital and limit risk.

There's much agreement that more Canadian players will soon enter the fray. In the U.S., life cycle funds are the industry's fastest-growing product line, amassing a staggering $139.7-billion (U.S.) in assets at the end of 2004, up 38 per cent from 2003.

"I think you are going to see more and more entrants in Canada," said Ian Filderman, Bank of Nova Scotia's director of mutual funds.

The bulk of offerings have yet to conclude their first year of operations so annual fees paid by unitholders have yet to be set. Performance data is limited too. Nevertheless, there are some compelling differences between Canada's five life cycle products.

Clarington Corp. of Toronto launched the first retail life cycle fund series, Clarington Target Click Funds, in Canada in February last year. The series of four funds -- 2010, 2015, 2020, and 2025 -- are managed by European financial giant ABN Amro Bank NV. The Target Click funds have about $120-million (Canadian) in assets under management.

Target Click's big selling point is "worry-free investing," said Eric Frape, Clarington's vice-president of product management. At maturity, investors are guaranteed to receive the greatest month-end unit value or the inception value, whichever is highest.

The catch is the Clarington portfolios have less diversified exposure than their life cycle rivals. Holdings comprise Canada bonds, cash and the ABN Amro Global Equity Exposure Fund.

Ethical Funds Co. got into life cycle funds last July when it launched its five Ethical Advantage Funds, which employ so-called socially responsible investment (SRI) principles. Potential investments are put through a screening process that weighs social, environmental and government concerns.

"It's a clear advantage for investors who want to make that choice," said Wusooq Khaleeli, investment product strategist with Vancouver-based Ethical Funds. The $12-million group of funds include a broad asset of fixed income, domestic and foreign equities.

Fidelity Investments Canada Ltd.'s Fidelity ClearPath Retirement Portfolios are a series of 10 funds that stretch all the way to a retirement date of 2045. A television marketing campaign has helped make them the fastest growing life cycle series. In only five months, retail assets under management have hit $208-million. In the U.S., Fidelity's parent is a life cycle giant, managing $44-billion (U.S.) within its Freedom Funds product line.

"It's a terrific mousetrap," said Marcia Mantell, Fidelity retirement specialist. The asset mix of the ClearPath portfolios are constantly tweaked and adjusted to account for market risk and retirement needs, she said.

Scotia Securities Inc. claims its offering, Scotia Vision Funds, beats the competition when it comes to choice. The group consists of eight funds that marry risk and maturity. Each fund holds nine asset classes in as many as 14 Scotia funds.

"Some investors are more conservative and some are more aggressive. One size doesn't fit all," Mr. Filderman said.

Scotia launched the Vision line last June and claims bragging rights as Canada's largest life cycle provider. About $281-million is invested across the eight funds.

CIBC Asset Management Inc.'s CIBC Sequence Portfolios was launched with little fanfare in July last year. The nine funds hold a mix of Renaissance and Talvest Funds. The offering includes funds geared toward conservative and moderate investors.

Sequence is monitored by a CIBC Asset Management consulting group of about 15 investment professionals.

The group uses a four step process that finds industry-leading investment managers. The group then monitors those managers to ensure each portfolio meets expectations. Each portfolio's asset mix is rebalanced when there is a shift of 2.5 per cent from benchmark weightings.

Current assets under management were unavailable. As of last Sept. 30, Sequence held about $2-million in assets under management.

© 2007 The Globe and Mail. All rights reserved.

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