New offerings from RBC Insurance bundle tried-and-proven diversification, low-vol strategies with valuable guarantees
How should investors react to stock-market volatility like what the COVID-19 outbreak has caused?
Since the deep and drastic downturn in equity markets during the first quarter, we’ve seen a diversity of responses. On one hand, there are the retail investors who have flocked to online brokerages, with many taking on outsized bullish positions that might not stand up to rigorous fundamental analysis. On the other hand, you have the more conservative crowd who are cashing out and, in some cases, getting more exposure to haven assets like gold.
But as noted by Selene Soo, director of Wealth Insurance at RBC Insurance, it’s often best to take a Buddhist-like approach. To be more specific, an equity investor who takes the middle path, succumbing to neither fear nor greed in the midst of uncertainty, is likely to enjoy gains in the long term.
“During times of heightened volatility, making changes to investment plans might not be the best idea,” Soo told Life and Health Professional. “I think it's important for investors to stay the course and really stick to the plan that they prepared with their advisor.”
She acknowledged that market downturns, like the one we saw during the worst of the pandemic’s impact, might churn up opportunities for investors. But the success of such decisions is often contingent on multiple external factors; the ability to come back from a loss, on the other hand, depends on their own financial situation and risk appetite, both of which can be severely tried in the face of the coronavirus acid test.
“I think history is full of examples to show investors being rewarded for staying the course over time. We’ve seen the dip, but we’ve also seen the recovery,” she said. “That speaks to the importance of not making any sudden decisions during times of volatility.”
Fortunately, that seems to be what’s happening among investors in RBC Insurance’s segregated funds. According to Soo, those products have been experiencing some of their lowest redemption rates in years, which she attributes to advisor communications and coaching practices that help clients keep an even keel. And with the launch of six new actively managed segregated funds, RBC Insurance hopes to help reduce the anxiety that could derail long-term investment plans.
“The six new funds that were created are actively managed by RBC Global Asset Management,” Soo said. “They have a team that monitors and rebalances the portfolio mix as needed and in line with the funds’ strategies and objectives – whether it’s to reduce risk or earn potentially higher returns – to keep them well positioned for the long term as markets fluctuate.”
The strategies underpinning the new guaranteed investment funds aren’t new; rather, they offer exposure to an array of tried and proven mutual funds that can help keep investors at ease. Four of the products follow global mandates, offering access to growth and innovation outside of Canada.
“Investing in financial markets outside Canada can increase a portfolio’s return potential,” Soo said.
“Even if you have one region performing poorly, another could be making up for it with stronger performance. Our global portfolios are able to access some of the world’s strongest and fastest-growing regions including the U.S., China, Germany, India, and Japan.”
The two other funds, meanwhile, offer access to low-volatility equity strategies that offer investors a more conservative flavour of stock exposure. According to Soo, those funds rely on quantitative models that are overlaid with the investment expertise of the fund managers, with an eye toward providing a smoothed-out performance profile that lends itself to stable returns over the long term.
The ability to provide global diversification and low-volatility stock exposure already goes a long way toward giving peace of mind. But by offering the strategies in a seg-fund wrapper, RBC Insurance also gives investors the opportunity to access protective benefits such as a minimum 10-year maturity guarantee, a death benefit guarantee, estate planning benefits such as by-passing probate and potential creditor protection.
“Our seg funds do have very competitive MERs depending on the asset class and the guarantee structure,” Soo said. “For our standard series, the MERs range from 1.7% for the lowest-guarantee fixed-income fund, to 3.49% for the most aggressive fund that encompasses all the features and protection benefits.”
To critics, some of the guarantees offered by seg funds are of little value in the current environment. A seg fund with a 10-year maturity guarantee set at 75% that was purchased just before the pandemic-driven downturn hit, for example, may not make much sense to some people. But as Soo stressed, that thinking falls short of considering the whole picture.
“You have to consider the other features as well. The potential for creditor protection, for example, may be especially important right now for small business owners who want to protect their personal assets in the event of bankruptcy,” Soo said. “The key is to work with an adviser to ensure you have a well-diversified investment portfolio that can withstand the ups and downs of the market, and seg funds can help by adding that additional layer of security.”
