PH&N LifeTime Funds. Investment Guide

Transcription

1 Investment Guide

2 PH&N LIFETIME FUNDS Your One-Fund Retirement Solution A Leading Global Asset Manager for Canadian Investors Established in 1964, Phillips, Hager & North Investment Management (PH&N IM) is a leading asset manager in Canada and a division of RBC Global Asset Management Inc. (RBC GAM). PH&N IM focuses on developing investment solutions to meet the evolving needs of retirement plans, endowments, governments, companies, unions, and other institutional and individual investors in Canada. Delivering Simplicity and Ease to Retirement Planning In response to the need among investors across Canada for a retirement investment solution that is professionally managed, easy to select and maintain, and simple to understand, PH&N IM developed a series of target date investment solutions called the PH&N LifeTime Funds. Key Benefits of the PH&N LifeTime Funds The PH&N LifeTime Funds provide investors with a one-fund investment solution that is easy to select, designed to meet the income needs of the model investor over his/her lifetime, structured to adjust the asset mix automatically to reflect the diminishing time to retirement, intended to reduce the impact of inflation on retirement savings accumulations, effectively diversified at all times, and professionally managed and rebalanced automatically to help meet long-term objectives. 1

3 Easy to Select The PH&N LifeTime Funds require you to select just one fund to meet your retirement goals. Selecting the right fund is easy. First, determine the date you plan to retire. Then, use the table below to select the corresponding PH&N LifeTime Fund. Each PH&N LifeTime Fund targets retirement in a specific year (the year in its name) and is suitable for investors planning to retire close to that date. For example, if you plan to retire in 2039, you should select the PH&N LifeTime 2040 Fund as its asset mix will accommodate investors who want to begin withdrawing income as early as What year do you plan to retire? Select the corresponding PH&N LifeTime Fund: 2 0 YOUR PLANNED RETIREMENT DATE Now-2017 YOUR PH&N LIFETIME FUND PH&N LifeTime 2015 Fund PH&N LifeTime 2020 Fund PH&N LifeTime 2025 Fund PH&N LifeTime 2030 Fund PH&N LifeTime 2035 Fund PH&N LifeTime 2040 Fund PH&N LifeTime 2045 Fund PH&N LifeTime 2050 Fund New PH&N LifeTime Funds will be launched every five years to accommodate new entrants into the workforce (i.e., PH&N IM will launch the 2055 fund in 2020, etc.). 2

4 Automatic Asset Allocation Broadly speaking, each PH&N LifeTime Fund holds certain amounts of equities and fixed income. Equities are typically riskier investments than fixed income, but are helpful in generating greater long-term growth of assets. As you can see in the illustration below, the further a fund is from its retirement date, the more equities it holds. Funds closer to their retirement date are more conservatively positioned through higher allocations to fixed income. This shift helps protect assets already grown, and helps the funds support regular income withdrawals once investors move into retirement. The Glide Path Each fund transitions from holding more equities to holding more fixed income through gradual adjustments made every year to the fund s asset mix. The portfolio management team has identified a target asset mix for each year of the fund s life. This series of annual adjustments creates the predefined glide path along which each PH&N LifeTime Fund moves. PH&N LifeTime Funds: Positions Along the Glide Path in % 90% 80% Fixed Income ASSET MIX 70% 60% 50% 40% 30% 20% 10% 2050 Fund 2045 Fund 2040 Fund 2035 Fund 2030 Fund 2025 Fund 2020 Fund 2015 Fund Equities 0% YEARS BEFORE RETIREMENT RETIREMENT YEARS AFTER RETIREMENT Source: Phillips, Hager & North Investment Management This chart reflects the 2015 calendar year 3

5 Three Phases of the Glide Path The glidepath encompasses three distinct investment phases: accumulation, transition, and decumulation. Each phase has its own objective and automatic asset allocation strategy. These are described in more detail on the following page. Automatic Asset Allocation Through the Three Phases of the Glide Path EQUITIES Canadian equities (growth) Canadian equities (value) Global equities (fundamental) Global equities (quantitative) Global equities (low volatility) Emerging market equities Real estate FIXED INCOME Long inflation-linked bonds Inflation-linked bonds High yield bonds Universe bonds Short-term bonds & mortgages 100% High yield bonds 90% Long inflation-linked bonds Inflation-linked bonds Universe bonds Short-term bonds & mortgages 80% Real estate 70% Emerging market equities ASSET MIX 60% 50% 40% Global equities (quantitative) 30% 20% 10% Global equities (fundamental) Canadian equities (value) Retirement Global equities (low volatility) 0% Canadian equities (growth) ACCUMULATION PHASE (40-11 YEARS BEFORE RETIREMENT DATE) TRANSITION PHASE (10 YEARS BEFORE AND AFTER RETIREMENT DATE) DECUMULATION PHASE (11+ YEARS INTO RETIREMENT) Source: Phillips, Hager & North Investment Management Source: As at June Phillips, 2015Hager & North Investment Management Inception date for LifeTime Funds is January Inception date for LifeTime 2050 Fund is August

6 Accumulation phase: In this initial phase, with at least more than a decade remaining until retirement, the investment objective of the model investor is asset accumulation. Such investors are able to tolerate more risk than they will when they are closer to retirement given that they have a longer time frame remaining in which to make up for any periodic negative performances. The fund, consequently, has a greater allocation to equities than it will later in its life. Historically, equities have earned more over the long term than bonds, so the equities are included in the fund to promote asset accumulation. There is also an allocation to fixed income to support the assumed objective of protecting the assets accumulated. Specifically, there is an emphasis on inflation protection to meet the long-term objective of supporting income needs in retirement (see page 6 for more details). Transition phase: In this late employment and early retirement phase, the fund s allocation to equities is reduced and replaced with a higher allocation to fixed income holdings. This prepares the fund to support the withdrawal of retirement income by its investors. Decumulation phase: One of the innovative features of the PH&N LifeTime Funds is that each fund remains active 25 years past its retirement date. This means that even after you retire, your fund s asset mix will continue to be adjusted to reflect your diminishing time horizon and continuing need for income. While a small allocation to equities is maintained, the emphasis will shift to fixed income holdings. 5

7 Helping to Protect Your Purchasing Power Retirees today are enjoying longer lives and more active lifestyles than previous generations. Because inflation occurs naturally in the economy and can have an erosive impact on your savings, you will need to have a retirement income stream that aims to keep up with the rising costs of goods and services. A distinctive feature of the PH&N LifeTime Funds is that they use three methods that aim to lessen the impact of inflation on your long-term savings: 1. The funds incorporate exposure to asset classes that have been traditionally somewhat insulated from the effects of inflation, such as real estate. 2. The funds include a high allocation to inflation-linked bond funds in the accumulation and transition phases, when investors are most exposed to the impact of inflation due to their long investment time horizon. 3. The funds match the sensitivity to inflation of the fixed-income holdings with future retirement income needs by shifting from long-term bonds to short-term bonds over time. The Impact of Inflation Impact of varying inflation rates on the purchasing power of $1 in 60 years: 1% inflation 2% inflation 3% inflation 4% inflation $1.20 PURCHASING POWER OF TODAY S DOLLAR $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 $0.82 $0.67 $0.67 $0.55 $0.46 $0.45 $0.31 $0.52 $0.28 $0.21 $0.15 $ TIME (YEARS) Source: Phillips, Hager & North Investment Management 6

8 Risk Management through Effective Diversification Systemic shocks and market crises, while rare, can damage a fund s performance severely. The portfolio management team tested 2,000 random economic scenarios to uncover potential underlying risks of various allocations, and determined an effective level of diversification to reduce the possibility of having all investments underperform at the same time. As a result, the PH&N LifeTime Funds are diversified at all times across different asset classes, geographic regions, and equity investment strategies. Asset class diversification: Each fund holds what PH&N IM s testing shows to be an optimal mix of stocks, bonds, exchange traded funds, and cash equivalents. Alternative assets: The funds also incorporate varying allocations to real return bonds, real estate, and U.S. small- and midcapitalization equities. Since the performance of these types of investments tends not to be linked to the performance patterns of traditional asset classes, they allow the funds to pursue enhanced returns and reduced risk. Geographical diversification: Each fund is diversified further by region to gain exposure to opportunities in Canada, the U.S., and around the world. Investment strategy diversification: The funds are also diversified across equity investment strategies to help offset any negative impact on performance that may be attributed to a given strategy during a particular stage of a market cycle. 7

9 Investment Structure Each PH&N LifeTime Fund holds units in other funds, which are known as the underlying funds. In this way, the investment manager for the PH&N LifeTime Funds handles the mix of funds so you need to hold only one fund. Each underlying fund represents an asset class or a specific strategy, and below is the current list of funds held by the PH&N LifeTime Funds. This list may change over time. Cash PH&N Canadian Money Market Fund Fixed Income PH&N Long Inflation-Linked Bond Fund PH&N Inflation-Linked Bond Fund PH&N High Yield Bond Fund PH&N Bond Fund PH&N Short Term Bond & Mortgage Fund Award-Winning Funds Spanning All Asset Classes 2014 Morningstar Canadian Investment Awards TM PH&N IM Morningstar Fixed Income Fund Manager of the Year Lipper Awards Canada PH&N Funds Best Funds Group Overall in 2010, 2011, 2012, 2013, 2014 Best Bond Funds Group in 2007, 2008, 2010, 2011, 2012, 2013 Equities PH&N Canadian Equity Underlying Fund PH&N Canadian Equity Value Fund PH&N U.S. Multi-Style All-Cap Equity Fund RBC QUBE Low Volatility Global Equity Fund RBC QUBE Global Equity Fund RBC Global Equity Focus Fund RBC Emerging Markets Equity Fund Real Estate Vanguard REIT ETF 8

10 Automatic Rebalancing The PH&N LifeTime Funds are rebalanced on a quarterly basis, as well as whenever market performance causes the asset mix to drift significantly from the glide path. When market performance causes an asset class to outperform, the portfolio becomes more heavily weighted in that asset class due to its gain in value (although the absolute number of units held does not change). To address this drift from the desired asset mix, the manager may sell some of the outperforming asset class held in the portfolio and allocate the proceeds to other asset classes. This brings the fund back in line with its designated position on the glide path and its long-term objectives. Review Your Progress You will receive quarterly statements to keep you updated on your fund s performance and investments. Bear in mind that while these statements provide a useful snapshot of your fund at a given moment in time, the fund s management team is focused on your long-term savings and income objectives. As a result, you should not be too preoccupied with short-term fluctuations in value. If you do have concerns over time about the performance of your PH&N LifeTime Fund, please consult a financial advisor. Be sure to review your investment approach if you need to change your expected retirement date. Significant life changes such as marriage, divorce, or job loss may require you to change your expected retirement date, which in turn may require you to sell the existing fund and buy into another PH&N LifeTime Fund that better corresponds to your new plans. 9

11 Commissions, trailing fees, management fees and expense all may be associated with mutual fund investments. Please read the prospectus or Fund Facts document before investing. Mutual funds are not covered by the Canadian Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurance that the funds will be able to maintain their net asset value per security at a constant amount or that the full amount of your investment will be returned to you. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. No securities are being offered under this document and under no circumstances is this document to be construed as a prospectus, offering circular, offering memorandum or other offering document related to a distribution of units of PH&N Funds. This document may contain forward-looking statements about PH&N Funds, their future performance, strategies or prospects, and possible future Fund action. The words may, could, should, would, suspect, outlook, believe, plan, anticipate, estimate, expect, intend, forecast, objective and similar expressions are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance. Forward-looking statements involve inherent risk and uncertainties, both about the Fund and general economic factors, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution you not to place undue reliance on these statements as a number of important factors could cause actual events or results to differ materially from those expressed or implied in any forward-looking statement made about or by the Fund. These factors include, but are not limited to, general economic, political and market factors in Canada, the United States and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological changes, changes in laws and regulations, judicial or regulatory judgments, legal proceedings and catastrophic events. Before making any investment decisions, we encourage you to consider these and other factors carefully. All opinions in forward-looking statements are subject to change without notice and are provided in good faith but without legal responsibility. Phillips, Hager & North Investment Management (PH&N IM) is a division of RBC Global Asset Management Inc. (RBC GAM), an indirect, wholly-owned subsidiary of Royal Bank of Canada. PH&N Funds are offered by RBC GAM and distributed through authorized dealers. Morningstar Awards 2014 Morningstar, Inc. All Rights Reserved. Awarded to PH&N Fixed Income Team for Morningstar Fixed Income Manager of the Year, Canada. The 2014 Lipper Award was based on best risk-adjusted performance for the period ended July 31, Lipper Awards for 2011, 2012 and 2013 were based on the periods ended October 31, 2010, 2011 and 2012, respectively. Lipper Awards for 2010 were based on the period ended November 30, Lipper Awards for 2007, 2008 and 2009 were based on the periods ended December 31, 2006, 2007 and 2008, respectively. Lipper Inc. is a Thomson Reuters company. / TM Trademark(s) of Royal Bank of Canada. Used under licence. RBC Global Asset Management Inc., 2015 IF (06/2015)