MFS Responsible Canadian Fixed Income Segregated Fund closure and asset transfer
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 segregated funds under the Insurance Companies Act (Canada).
Sun Life regularly reviews the fund offerings in response to client interest and evolving fund offerings in the market.
On December 5, 2023, we’ll close MFS Responsible Canadian Fixed Income Segregated Fund (“discontinued fund”). We’ll transfer any money in – and any future contributions directed to - the discontinued fund to PH&N Future Solutions Bond Segregated Fund (“replacement fund”). The transfer will happen automatically unless we explicitly receive different instructions from you (see “Action may be required” section below).
The manager of the discontinued fund, MFS Institutional Advisors Inc. (“MFS”), stopped offering the MFS Responsible Funds suite to new clients in May 2022. MFS made this decision because the Responsible Funds’ exclusionary screening process is not aligned with MFS’ integration approach to sustainable investing. MFS’ integration approach in their other funds considers financially-material environmental, social and governance factors as part of the investment process.
MFS’ decision to stop offering the MFS Responsible Funds suite raised our concern about the ongoing viability of the discontinued fund.
The discontinued and replacement funds are in the same asset class (Canadian fixed income). The replacement fund uses some exclusionary screens; however, it has a broader investment objective than the discontinued fund. The PH&N Fixed Income team (“PH&N investment team”) who manages the replacement fund considers the issuer’s business and the bond's use of proceeds. The replacement fund invests in fixed income securities of companies, government or quasi-government entities (“issuers”) that seek to effect positive change.
The investment management fees for the replacement fund will be the same, or lower, than those for the discontinued fund.
Your plan(s) may not currently offer the replacement fund in the lineup. In that situation, we’ll automatically add the replacement fund to the lineup before the asset transfer occurs.
Sun Life’s governance activities on the discontinued fund will end after the fund closure.
Action may be required
You don’t have to take any action if you are satisfied with the replacement fund and date suggested above.
If you want to select a different replacement fund, you may transfer the money in the discontinued fund into either:
- another Canadian fixed income fund currently in your line-up, or
- an alternative fixed income fund on the Core investment platform which better suits your plan’s needs.
If you wish to select a different replacement fund and/or asset transfer date before December 5, 2023, you need to make this selection and inform Sun Life of your decision by October 31, 2023.
How will this affect your members?
On December 5, 2023, we’ll automatically transfer any money remaining in – and any future contributions directed to – the discontinued fund to the replacement fund. When the changes are implemented, plan members will see a sale of the discontinued fund and the purchase of the replacement fund reflected in their accounts. This change will not result in a taxable capital gain or loss for plan members if their money is invested in a registered plan.
Plan members with money in a non-registered plan will likely experience a capital gain or loss when we transfer the money to the replacement fund. The members must report capital gains in the year the transfer occurs.
Plan members can move their money to any other funds offered in the plan. They can do so at any time before the transfer automatically takes place on December 5, 2023.
About the replacement fund
For information about the replacement fund, please click here.
About Phillips Hager & North (“PH&N”)
PH&N is the manager of the replacement fund. PH&N is a division of RBC Global Asset Management Inc, an indirect, wholly-owned subsidiary of Royal Bank of Canada (RBC). PH&N has managed institutional assets since 1964. As of June 30, 2023, the firm managed C$329 billion of assets. PH&N’s fixed income team is deep and experienced. The team managed C$120.7 billion in assets (as of June 30, 2023).
About Sustainalytics
Sustainalytics provides analytical environmental, social and governance (ESG) research, ratings and data to institutional investors and companies. Sustainalytics was established in 1992 and Morningstar acquired Sustainalytics in 2020. As of June 2023, the firm had 16 offices globally and 800 research analysts with research coverage across 172 countries and over 20,000 companies.
Investment guidelines breach in the discontinued fund
On June 8, 2023 MFS purchased shares of CAE Inc. (0.39% of the fund at the time of purchase) for the discontinued fund. CAE Inc. isn’t an eligible investment for the fund since the company derives about 25% of its revenues from weapons. The breach happened because CAE Inc. had duplicate company IDs on MFS order management system. MFS sold the CAE Inc’s shares and the discontinued fund was back into compliance on June 12, 2023.
GRS Investment Solutions team doesn’t have a concern with the breach. MFS acted in a timely manner by selling the position in three business days. MFS has also consolidated the company IDs on its order management system to prevent the same issue from happening again.
We provide the update above as part of Sun Life’s governance. The breach didn’t influence our decision to close the discontinued fund.
Questions?
Please contact your Sun Life Group Retirement Services representative.