Enhancements to the Sun Life Granite Target Date and Sun Life Granite Multi-Risk Target Date Segregated funds
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 a segregated funds under the Insurance Companies Act (Canada).
In December 2023, SLGI Asset Management (SLGI) provided updates to the enhancements previously announced in June 2023 for the Granite Target Date and Granite Multi-Risk Target Date series of Segregated funds (Granite TDFs). SLGI also announced new enhancements to the Granite TDFs. We've outlined the updates below.
Updates to previously announced enhancements
Glidepath update:
As communicated in June 2023, SLGI have started increasing the target equity weight across all glidepaths. SLGI completed the first of the five instalments on October 1, 2023. The recent changes in equity levels are below.
Strategic equity allocation in Granite TDFs (%)
| 2065 | 2060 | 2055 | 2050 | 2045 | 2040 | 2035 | 2030 | 2025 | Ret. | |
|---|---|---|---|---|---|---|---|---|---|---|
| Old | 91.5 | 91.5 | 91.4 | 89.8 | 84.7 | 74.7 | 61.2 | 48.6 | 38.6 | 35.0 |
| New Oct 1, 2023 | 91.8 | 91.8 | 91.5 | 90.0 | 85.1 | 75.6 | 62.6 | 49.9 | 39.4 | 36.3 |
| Change | +0.3 | +0.3 | +0.1 | +0.2 | +0.4 | +0.9 | +1.4 | +1.3 | +0.8 | +1.3 |
Selection of a direct infrastructure fund:
In June 2023, SLGI had announced the addition of three new asset classes to Granite TDFs: Direct Infrastructure, Direct Real Estate, and Liquid Alternatives. SLGI has now selected the InfraRed Energy Transition Fund (the “Infrastructure Fund”) managed by InfraRed Capital Partners (InfraRed), as a Direct Infrastructure allocation.
The Infrastructure Fund aims to generate long-term sustainable yield and total return through a diversified portfolio of infrastructure projects. It focuses on renewable energy in the U.S and Canada. It invests primarily in the growing industry of sustainable energy infrastructure. This includes wind, solar and battery storage. The Infrastructure Fund targets a stable yield and absolute returns. It seeks to provide a target net internal rate of return of 8%, including a minimum 5% annual dividend yield.
InfraRed is a global infrastructure and real estate manager based in London, UK. They have offices in London, New York, Sydney, and Seoul. InfraRed actively manages over 230 infrastructure projects in 18 countries. They manage US$13.6bn of equity under management in private and listed funds as of September 2023. InfraRed has 25 years of infrastructure investing experience as well as over ten years of experience with renewables. InfraRed is part of SLC Management, Sun Life's alternatives asset management business. Sun Life Financial Inc. acquired a majority stake in InfraRed in July 2020 to add capabilities in infrastructure equity and to advance sustainable investment options.
SLGI believes the addition of the Infrastructure Fund should improve the risk/return profile of Granite TDFs, particularly as they get closer to retirement. SLGI’s bases this on their forward-looking asset class assumptions and efficient frontier modeling. SLGI cites that the benefits of this fund’s addition into the Granite TDFs include downside protection, asset class diversification, and inflation protection. SLGI has a target allocation of up to 1.35% in the Infrastructure Fund across Granite TDF. An initial investment will occur in 2024 when InfraRed makes capital calls on SLGI’s commitments.
Update on allocation to Acadian International Equity:
In June 2023, we communicated SLGI’s addition of the Acadian International Equity Fund to the Granite TDFs. On October 1, 2023, SLGI initiated investment in the fund at a weight of 28% of the international equity component. By the end of the transition in November 2024, there will be one-third allocation in each of: Acadian International Equity, MFS International Growth, and JPM International Equity. SLGI will eliminate the allocation to MFS International Value.
| International equity funds | Pre-Acadian | Oct-23 | Feb-24 | May-24 | Aug-24 | Nov-24 |
|---|---|---|---|---|---|---|
| MFS International Value Fund | 25% | 12% | 9% | 6% | 3% | 0% |
| Acadian International Equity Fund | 0% | 28% | 29% | 30% | 32% | 33% |
| MFS International Growth Fund | 25% | 27% | 29% | 30% | 32% | 33% |
| JPM International Equity Fund | 50% | 33% | 33% | 33% | 33% | 33% |
| Total allocation | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% |
Newly announced enhancements
Increased frequency of glidepath roll-down
SLGI is moving to a quarterly “roll-down” process (previously semi-annual) for Granite TDF. A roll-down is when the asset mix of each fund is adjusted over time, in accordance with the glidepath. SLGI believes that a quarterly cadence will allow for more frequent and smaller changes to the glidepath, resulting in a smoother roll-down process. The quarterly roll-downs will occur on February 1, May 1, August 1, and November 1, beginning in 2024.
Addition of new bond fund
In December, SLGI announced the addition of the Sun Life Net Zero Target Bond Fund (the “NZ Bond Fund”) to Granite TDF. SLGI and SLC Management jointly developed the NZ Bond Fund. SLC Management actively manages the NZ Bond Fund as a Canadian core bond mandate, with exposures to investment grade fixed income. SLGI initiated an allocation of up to 2.25% in Granite TDF in December 2023.
The NZ Bond Fund has a long-term target of achieving net-zero carbon/greenhouse gas emissions by 2050. The NZ Bond Fund targets a reduction in the greenhouse gas emission intensity of its corporate bond exposure of at least 50% by 2030. The NZ Bond Fund also targets a portfolio allocation of 10% or more to green or sustainability bonds by 2030.
SLC Management is wholly-owned by Sun Life and has over 150 years of experience in Canadian fixed income.
GRS Investment Solutions View:
We met with SLGI in mid-December 2023 to discuss these updates. We continue to be comfortable with the increased equity levels in the glidepaths and the additions of Direct Infrastructure, Direct Real Estate, and Liquid Alternatives as new asset classes. For more information on the role that real assets can play in a capital accumulation plan, please refer to our recent article here.
The selection of the InfraRed Energy Transition Fund for Direct Infrastructure is intended to take advantage of the unprecedented opportunities in renewable energy infrastructure over the next few decades. While a more diversified approach to infrastructure would be appropriate for a stand-alone infrastructure fund, within the highly diversified Granite TDFs, this more specialized allocation makes sense.
The addition of the Sun Life Net Zero Target Bond will allow SLGI to take a small step towards reducing the carbon intensity of the Granite TDF’s fixed income allocation. The fund is new and therefore doesn’t have a proven track record. As a Canadian core bond fund, we don’t expect it will have a significant impact on overall Granite TDF performance.
Increasing the frequency of the glidepath roll-downs to quarterly will allow for more precision and consistency in managing the asset mix. SLGI does not expect more frequent trading to have a material impact on transaction costs.
We are comfortable with SLGI’s most recent enhancements. We’ll be closely monitoring the implementation of these changes over the next 8-12 months and we will provide further updates during the year.
Do you have to take any action?
You and your members don’t have to take any action as a result of these changes.
Questions?
Please contact your Sun Life Group Retirement Services representative.