Target-risk assets soar amid intense competition

How fund managers try to set themselves apart.

Jeffrey Bunce, CFA 20 June, 2016 | 5:00PM

Editor's note: This week's three-part series on target-risk funds, authored by manager research analyst Jeffrey Bunce, begins today with an overview of the dramatic growth of these funds of funds and how asset managers are seeking to differentiate themselves amid intense competition. The series is based on a research paper released this month by Morningstar Canada's manager-research team. The series will continue on Wednesday with a focus on fees, and conclude on Friday with an examination of past performance.

Net flows into funds of funds, which target-risk assets dominate, has grown dramatically in recent years. From January 2010 to December 2015, asset flows into funds of funds dwarfed flows into stand-alone funds by almost six to one ($191 billion versus $32 billion), according to the Investment Funds Institute of Canada. Moreover, this growth has been stable. Funds of funds have not experienced a single month of net outflows over the period, whereas stand-alone funds have had numerous months of net outflows.

Fund-of-funds assets rose from 18%, or $122.5 billion, of total mutual-fund assets in Canada in January 2010 to 32%, or $392 billion, in December 2015. During this time, fund-of-funds assets have more than tripled while stand-alone fund assets have increased by a much more modest 49%. The largest mutual funds in the country -- RBC Select Conservative Portfolio and RBC Select Balanced Portfolio -- are funds of funds with target-risk mandates. By contrast, the two largest funds at the beginning of 2010 were Investors Dividend and Fidelity Canadian Asset Allocation -- both stand-alone funds.

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About Author

Jeffrey Bunce, CFA

Jeffrey Bunce, CFA  Jeffrey Bunce, CFA, is a senior investment analyst for Morningstar’s Investment Management group.