Retail Funds Take Cue From Pensions

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May 26, 2009 11:14am ETF BASIC NEWS

pensionIf you can’t always beat them, it’s time to join them.  Low-fee index mutual funds and ETFs (exchanged-traded funds) are creeping into fund of funds portfolios. And these offerings appear to mimic moves by pension managers, which invest in active and passive strategies as well as other assets like real estate whose values do not necessarily move in tandem with stock markets.

Manulife Mutual Funds recently launched three index funds – Manulife Canadian Equity Index, Manulife U.S. Equity Index and the Manulife International Equity Index – but they are not sold as standalone funds.

They are being incorporated into its existing Simplicity asset allocation program, which offers actively managed fund portfolios ranging from conservative to aggressive.

“We have value and growth [equity styles] because they perform differently at different times,” said Jeff Ray, an assistant vice-president of mutual fund products at Manulife Mutual Funds. “We felt that adding a passive or index fund … would be a good complement to those active styles.”

But the management fees, which currently range from 1.6 per cent in the conservative portfolio to 2.35 per cent in the aggressive portfolio, are not expected to decline because of the index funds, Mr. Ray said.

The percentage of index products being added to the portfolios will not change the fee structure, he said. “We look at them to make up about 20 per cent of the overall equity weighting in the portfolios.”

Last year, AGF Funds Inc. and Invesco Trimark Ltd. also began offering ETFs in some packaged-fund portfolios. The move also gives financial advisers at mutual fund dealers, which are not licensed to sell ETFs, a way to get access to these products for their clients.

In its Harmony fund-portfolio program, AGF uses a non-traditional asset pool of Claymore ETFs that invests in sectors like real estate, infrastructure, water, oil sands, and agriculture and mining.

AGF said yesterday that there was no one available who could comment on the Claymore ETF pool. But former AGF president Randy Ambrosie told last year that “advisers of all stripes understand the idea of non-correlated assets.

Invesco Trimark, whose sister company is U.S.-based Invesco PowerShares, now offers four target-date retirement income portfolios that include a group of “enhanced” PowerShares ETFs aimed at outperforming a passive index.

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