Product Review: Manulife’s
Goals-Based Investing Program

September 30, 2019

Officially launched last October, the Manulife Goals-Based Investing (GBI) Program makes available to individual investors an investment management strategy previously used only by pension funds, insurance companies, and other institutional investors. The strategy, called Liability-Driven Investment (LDI), attempts to balance returns against liabilities.

In the case of an individual planning for retirement, that requires an estimation of life expectancy and all potential income needs over that time, including lifestyle, healthcare, and other unanticipated costs. The goal, then, of LDI is not to “beat the market” but rather to successfully meet these income needs for the life of the retiree. By targeting a “goals-based” result, the GBI Program aims to take some of the uncertainty out of retirement planning.

What makes this possible to do at an individual level is a newly-developed, big-data analytics platform. The GBI Program leverages Manulife’s 130 years of investment and actuarial data to create and update an LDI plan for individuals. The results and recommendations of the analysis are provided to the Quantitative Management Team, which uses them to create a custom portfolio built from a combination of mutual funds.

A new lease on retired life

As seen in Chart 1, there are 16 mutual funds available for portfolio construction, which includes 10 target-date balanced funds, laddered in five-year increments from 2022 through 2067; five target date Canadian fixed-income funds, laddered in five-year increments from 2022 through 2042; and one tactical asset allocation portfolio.

The specific LDI strategy used by Manulife is “Dynamic LDI.” After matching assets to liabilities, as the name suggests, excess capital is dynamically allocated to growth assets. The growth assets are monitored and rebalanced in an effort to increase income available to the investor during retirement. As time to retirement decreases, positions in growth assets are reduced to lower the overall level of risk in the portfolio.

A look under the hood

The reduction in risk is completed within both the portfolio as a whole and as a built-in function of the component target date funds. Each asset helps reduce risk exposure in the portfolios as its target date draws closer, and they eventually transition to a “payout structure.” That shift across the target-date structure of the funds is evident in the change of the weighted-average maturity of the five Quantitative Fixed Income funds (Chart 2).

As you can see, weighted-average maturity decreases in a non-linear fashion, reducing slowly as it declines from 25 years in the Manulife Quantitative Fixed Income Fund 2042 before dropping to less than two years in the payout phase for Manulife Quantitative Fixed Income Fund 2022.

In addition to the shift in weighted-average maturity, “de-risking” across the funds’ asset types is also evident. Chart 3 shows how the five Quantitative Fixed Income funds scale in terms of bond allocations, including provincial, government agency, and corporate issues with maturities ranging from short (0-2 years) to medium (2-10 years) and long (10+ years).

The Quant 2022 Fund has no long-term fixed-income exposure, but it increases uniformly across the target dates up to the Quant 2042 Fund, which has 100% exposure to long bonds. One-year performance has been an excellent for Canadian long-term fixed income, and the Quant 2042 Fund reflects this with a 19.4% return, placing it in the top 50 highest returning funds. Of course, the goal of the GBI Program is not simply to generate the highest returns. However, having strong individual components creates more flexibility for the program and its investors.

A bright future ahead

While it will be some time before the results of the GBI Program can be properly evaluated, the initial results are very promising. Using large data sets to make an investment strategy that was previously the purview of institutions available to individuals is an innovative example of big data at work. Coupled with excellent initial performance and reasonable fees, the program component funds make a very positive first impression.

If Manulife’s GBI Program continues on this track, it could well become the new standard for managing and planning retirement investment solutions for Canadians.

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