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RBC's Vision for SRI: Fewer funds, manager changes, fee cuts

PH&N Community Values funds get recycled.

Rudy Luukko 28 June, 2017 | 6:00PM
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The RBC family of mutual funds is streamlining its socially responsible investing (SRI) offerings by eliminating three funds via merger, leaving the company with four funds in core asset categories, all rebranded under the RBC Vision name.

"This was an effort to simplify our fund offerings," Jonathan Hartman, head of investment solutions at RBC Global Asset Management Inc., told Morningstar. He noted there are strong similarities between the three PH&N-branded funds being merged -- PH&N Community Values Canadian EquityPH&N Community Values Global Equity and PH&N Community Values Balanced -- and their soon-to-be-renamed RBC counterparts.

No unitholder approvals were required, and RBC's independent review committee determined that the terms of the mergers were fair and reasonable to investors. The mergers are being carried out on a tax-deferred basis, so they will not be taxable events.

Along with getting infusions of assets, the three continuing equity funds (see table below) under their new names -- RBC Vision Canadian Equity, RBC Vision Global Equity and RBC Vision Balanced -- will embrace several SRI-related exclusions that were employed by the PH&N Community Values funds. These exclusions direct the portfolio managers to avoid investing in companies that are engaged primarily in the production of and distribution of alcoholic beverages, tobacco products, pornographic materials, gambling and military weapons.

These exclusions are in addition to the main screening process provided by the SRI research firm Sustainalytics to the PH&N Community Values and RBC Jantzi funds. The process begins with Sustainalytics screening companies for "best-of-sector" characteristics in terms of environmental, social and governance (ESG) factors. Subsequently, the portfolio managers select companies that have attractive financial characteristics, in addition to scoring well on ESG criteria. This process will remain in place for the continuing funds.

Current name New name, as of June 30
RBC Jantzi Canadian Equity RBC Vision Canadian Equity
RBC Jantzi Global Equity RBC Vision Global Equity
RBC Jantzi Balanced RBC Vision Balanced
PH&N Community Values Bond RBC Vision Bond
Source: RBC Global Asset Management Inc.

Another significant change -- which unitholders voted to approve on June 22 and will coincide with the June 30 renaming -- is the revision to the balanced fund's portfolio strategy. RBC Vision Balanced will become a fund of funds, investing primarily in the three other RBC Vision funds. The asset mix of the fund of funds will be managed by RBC GAM's investment strategy committee. Up until now, the balanced fund has invested directly in stocks, bonds and other securities.

The portfolio turnover that will be required to implement the fund-of-funds strategy has tax implications for holders of the fund in non-registered accounts. Hartman says the transition may result in the fund paying a taxable distribution in 2017 to unitholders, which he estimated could range from 2% to 4% of the fund's net asset value.

Overall, the mergers will create cost savings for RBC GAM, with some modest fee reductions for investors. RBC Vision Balanced is the only fund whose management fee is being reduced. The reductions are 10 basis points for each retail series. That will lower the management fee to 1.75% for Series A, 1% for Series D which is for discount-brokerage accounts, and 0.75% for Series F, which is for fee-based advisory accounts.

RBC will also trim the administrative fees, which cover fund expenses, by five basis points for the RBC Vision equity and balanced funds. This will reduce the administration fee to 0.1% for the Canadian equity and balanced funds, and 0.15% for the global equity fund.

Rounding out the starting line-up of the RBC Vision funds is RBC Vision Bond, being renamed from PH&N Community Values Bond. Effective June 30, the $202-million fund will be re-opened to new investors after having been capped since July 4, 2016. The fund will continue to be managed by the PH&N fixed-income team based in Vancouver.

In other changes effective June 30, the portfolio of RBC Vision Global Equity will be managed by Habib Subjally, head of global equities at London-based RBC Global Asset Management (UK) Ltd. Subjally has been the manager of the merging fund PH&N Community Values Global Equity. Similarly, Dennis Chan of Phillips, Hager & North Investment Management Ltd., manager of the merging PH&N fund, will be the manager of the continuing fund RBC Vision Canadian Equity.

In terms of their adherence to socially responsible investing, both the merging PH&N funds and the continuing RBC funds have generally performed well. On the RBC side, the Morningstar Sustainability Rating is "above average" for the Canadian fund and "high" for the global and balanced funds. Of the two PH&N funds that have Sustainability Ratings, the Canadian fund is rated only "average" while the global fund's rating is "above average."

As for investment performance, nearly all of the merging and continuing funds have either average or above-average Morningstar Ratings for their risk-adjusted historical performance. The exception is the 2-star rated RBC balanced fund, which will have a new strategy under its new name.

Post-merger, the four RBC Vision funds will manage a combined total of about $750 million, a tiny sliver of RBC's total $212.8 billion in mutual-fund assets. But RBC officials believe there's growing demand for SRI strategies. "Over the past decade a growing number of investors have sought out investment solutions with socially responsible mandates." Doug Coulter, president of RBC GAM, said in a June 27 release. "We believe that these options will continue to attract the interest of investors and advisors. As we look to the future, we look forward to further expanding our line-up of RBC Vision Funds."

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About Author

Rudy Luukko

Rudy Luukko  Rudy Luukko is a freelance writer who contributes to Morningstar.ca on topics involving fund industry trends and regulatory issues. He retired in May 2018 from his position as editor, investment and personal finance, at Morningstar Canada, where he had worked since 2004. He has also worked as an editor and writer for various general, specialty and institutional media, and he has co-authored courses for the Canadian Securities Institute. Follow Rudy on Twitter: @RudyLuukko.

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