- Plan Sponsors to Boost Allocations to International and U.S. Equities
- Allocation to International and U.S. Fixed Income also Expected to
TORONTO, March 22 /CNW/ -- With caps on foreign investment lifted for
Canadian registered plans, a significant percentage of Canadian defined
benefit pension plan sponsors expect to make significant shifts to the equity
allocations within their portfolios over the next two years, according to a
new survey by MFC Global Investment Management.
On an asset-weighted basis, 53 per cent of defined benefit plans are
expected to change their Canadian equity allocations, with a variety of new
approaches to be implemented.
The most significant planned increases were with international equities.
Fully one-third of plans intend to hike their international (ex. U.S.) equity
allocation over the next two years.
Eighteen per cent of plans intend to hike their allocation to U.S.
equities while at the same time 13 per cent intend to decrease the allocation.
Fifteen per cent of plans intend to hike their allocation to global equities
(strategies combining international and U.S. equities).
On fixed income side, more than one in four said they expect to decrease
their Canadian fixed income holdings in favor of fixed income investments in
the U.S. and international markets, according to the survey. The overall
allocation to fixed income, however, will hold steady over the next two years.
"The elimination of the 30 per cent foreign content limit has created an
unprecedented investment opportunity for Canadian pension plans to generate
enhanced returns and greater diversification potential by making larger
allocations to global capital markets," said Keith Walter, MFC Global's Senior
Vice President for Sales & Marketing. "It appears now that Canadian plan
sponsors are moving toward taking greater advantage of those investment
opportunities both in equity and fixed income."
The survey sought to assess the appetite for foreign investment among
defined benefit plans with assets in the $75 million to $10 billion range.
Telephone interviews were conducted with senior representatives from 148
defined benefit plan sponsors across Canada, who are involved in the asset
allocation decision on behalf of their plans. The interviews were conducted
between January 5 and February 5, 2007 by The Brondesbury Group.
For Canadian pension plans, equities typically account for 56 per cent of
investments and fixed income typically accounts for 41 per cent of
investments, while real estate and other alternatives account for
approximately three per cent. Canadian stocks typically account for 50 per
cent of equity investments, U.S. stocks account for 19 per cent, international
(excluding U.S.) for 18 per cent, and global (including U.S.) for 12 per cent.
Emerging markets account for one per cent. U.S. and other foreign investments
are generally regarded as quite distinct. Three-quarters of plans describe
their U.S. holdings as distinct from other foreign investments.
The survey indicated that while overall investment in U.S. equities is
expected to increase, plans with a high proportion of equities in the U.S.
also are more aggressively looking to invest in mid-, small- and all-caps
seeking both diversification and higher returns.
"Clearly, sponsors are looking for opportunities to find alpha and it
appears they expect to find it in the U.S. market, particularly in the mid cap
and small cap space," Mr. Walter said. "We see that the survey indicates that
sponsors also will be looking for more active investment management, which
also is consistent with plan sponsors' search for extra returns."
Many plan sponsors indicated that they stay primarily in Canada for its
convenience, ease of investing and to meet their Canadian dollar obligations.
Others point to currency risk and foreign market risk as the main barriers to
investing more globally. Only four in 10 plans surveyed use hedging to protect
against currency risk.
About MFC Global Investment Management
MFC Global Investment Management is the diversified investment management
group of Manulife Financial, with investment offices in the United States,
Canada, the United Kingdom, Japan, Australia, Hong Kong, and throughout
Southeast Asia. MFC Global has more than 100 years of experience managing
portfolios for the Manufacturers Life Insurance Company, John Hancock Life
Insurance Company, and other major clients. With more than C$240 billion (more
than U.S. $210 billion) in assets under management (as at December 31, 2006),
MFC Global Investment Management is a leading global investment management
group. Additional information about MFC Global Investment Management may be
found at http://www.mfcglobal.com.
Manulife Financial is a leading Canadian-based financial services group
serving millions of customers in 19 countries and territories worldwide.
Operating as Manulife Financial in Canada and Asia, and primarily through John
Hancock in the United States, the Company offers clients a diverse range of
financial protection products and wealth management services through its
extensive network of employees, agents and distribution partners.
Manulife Financial Corporation trades as "MFC" on the TSX, NYSE and PSE,
and under "0945" on the SEHK. Manulife Financial can be found on the Internet
For further information:
For further information: Brian Carmichael of John Hancock Financial
Services, +1-617-663-4748, firstname.lastname@example.org, for MFC Global
Investment Management Web Site: http://www.mfcglobal.com