Bringing ETF solutions to Canada's segregated fund (and mutual fund) space

This article was produced in partnership with Manulife Investment Management.

Manulife Investment Management made an industry-leading addition to its segregated fund shelf in September 2021.

Drawing on the strengths of its previously launched Manulife Smart ETFs, the company introduced the Manulife Smart Corporate Bond ETF segregated fund, the Manulife Smart Dividend ETF segregated fund, and the Manulife Smart U.S. Dividend ETF segregated fund (unhedged).

With that lineup, Manulife became the first Canadian financial institution to offer single-asset category ETFs in a segregated fund contract.

“Our Smart ETF segregated funds have proven to be very popular with clients and advisors,” says Kristina Pappas, Head of Product Development, Guaranteed Investment Products. “It’s great to be able to leverage the success of that offering and bring some of those popular ETF options to our segregated fund platform.”

The ETF industry’s expansion has been nothing short of tremendous, Pappas says, with 10-year growth rates clocking in at 22%¹. ETF segregated funds are also growing quickly. As of 2021 they account for about only $753 million² of Canada’s $165 billion segregated fund industry, so there’s plenty of room for them to advance further.

“These have resonated with life-licensed advisors as they provide access to ETF solutions,” she says.

The increasing popularity of ETFs have made them a focal point of innovation in the investment industry, so it was only a matter of time before they reached the guaranteed investment fund space.  Manulife Smart ETFs offer active management and attractive pricing, and layering on the estate-planning advantages of segregated fund contracts, Pappas says the ETF segregated funds provide yet another way for advisors to address clients’ evolving needs.

 In November the company introduced the Manulife Balanced Dividend ETF Bundle, further enhancing ETF access and choice for advisors and investors. Managed by Manulife’s Multi-Asset Solutions team, it has a target asset allocation of 30% in Canadian dividend stocks, 30% in U.S. dividend stocks, and 40% in Canadian corporate bonds through the corresponding Manulife Smart ETFs.

 “The bundle offers all in one solution for advisors who are seeking a traditional balanced strategy, while alleviating the portfolio rebalancing requirement for them as well,” Pappas says. “And we know for some clients the bundle strategy might not be the most suitable asset mix, so advisors can use the single-asset class ETFs individually for their needs.”

The Manulife Balanced Dividend ETF bundle is available both on the mutual fund and segregated fund platforms; the segregated fund version invests in the mutual fund which in turn invests in the underlying ETFs. The group managing the strategy keeps it on a balanced keel, rebalancing it regularly to ensure that it stays within 5% of its asset-allocation targets.

According to Pappas, Manulife’s research shows that Canadian corporate bonds have historically offered increased yield³ and have the potential to outperform Canadian bonds generally. Similarly, she says dividend-growing stocks have historically outperformed the broader stock market³ and may have also been shown to offer protection during periods of high inflation.

“With inflation being top of mind, dividends can be especially useful for clients in the current environment as well,” Pappas says.

Amid a continuing focus on fees, assets and fund flows in the segregated fund space have shifted significantly toward lower-cost segregated fund products. With that in mind, Pappas says Manulife’s offerings, which include its InvestmentPlus and MPIP segregated pools, are lower-guarantee 75/75 products, broadly in line with what’s available in the industry.

“Our segregated fund contracts are really focused on providing lower cost investment options for life-licensed professionals,” Pappas said. “We’re excited to give advisors more choice and flexibility as they help their clients meet their financial goals.”

_{¹ Source: Manulife Investment Management, Bloomberg, as of December 31, 2021.}

_{² Source: Investor Economics, Insurance Advisory Service, Canada Special Feature, April 2021}

_{³ Source: Morningstar Direct, September 30, 2001 to September 30, 2021}

_{Sponsored by Manulife Investment Management, as of March 2022.}

_{The commentary in this publication is for general information only and should not be considered investment or tax advice to any party. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation.}

_{Manulife ETFs are managed by Manulife Investment Management. Manulife Investment Management is a trade name of The Manufacturers Life Insurance Company. The Manufacturers Life Insurance Company (Manulife) is the issuer of Manulife Investment Management contracts containing segregated funds and the guarantor of any guarantee provisions therein. Any amount that is allocated to a segregated fund is invested at the risk of the contractholder and may increase or decrease in value. Performance histories are not indicative of future performance. For information on guarantees, fees and expenses that may apply to segregated funds, please read the information folder, contract and Fund Facts of the segregated funds.}

_{Commissions, management fees and expenses all may be associated with exchange traded funds (ETFs).  Investment objectives, risks, fees, expenses and other important information are contained in the ETF facts as well as the prospectus, please read before investing.  ETFs are not guaranteed, their values change frequently and past performance may not be repeated.}