Find out more about the options for a multi-strategy approach at retirement.
Our products and how they can be used in decumulation
Multi-asset funds as part of a decumulation framework
By Andrew Morris, Senior Product Specialist, Canada Life Asset Management
In the final article in this series, we look at our actively managed, globally-diversified multi-asset funds that can help advisers and their clients meet their objectives through long-term capital growth or a combination of long-term capital growth and income. We also highlight some of the key underlying strategies held in the funds.
Canada Life Asset Management (CLAM) offers a range of multi-asset solutions that can be used as part of a decumulation framework, including a monthly income fund, the WS Canlife Diversified Monthly Income Fund, for those looking for a steady income on a monthly basis, and five risk-targeted WS Canlife Portfolio Funds that aim to achieve long-term capital growth while seeking to remain within a defined risk band.
In the previous articles in the series, we look at a range of decumulation strategies, and then which of these best suits the different stages of retirement. Our guide, Investment choices for clients in decumulation, explores these issues in more depth.
- Article 1: Considering decumulation strategies
- Article 2: Options for a multi-strategy approach at retirement
WS Canlife Diversified Monthly Income Fund
Our WS Canlife Diversified Monthly Income Fund is a natural income fund that offers a straightforward and cost-effective solution to clients looking for greater confidence in how much income their investment pays on a monthly basis. The fund aims to provide a monthly income from securities that generate dividends, coupon payments and rental income, together with potential for long-term capital growth (at least five years). The fund managers focus on achieving a regular income without sacrificing the potential for capital gains over time, by blending income and capital growth opportunities, including a lower-correlated, multi-strategy allocation within the fund to grow capital.
Unlike many traditional income funds, the WS Canlife Diversified Monthly Income Fund pays out a steady income each month (effectively a smoothed distribution), allowing investors to budget with greater confidence. To do this, the fund sets a targeted monthly income per unit each year so, no matter the price of the underlying fund, the dividends aim to be consistent on a pound value each month. We aim to increase this payment annually in line with inflation.
Natural income funds in general are designed to generate a steady stream of income directly from their underlying assets, such as interest from bonds, dividends from equities, rental income from real estate, and sometimes income from alternative assets. They distribute that income on a regular basis without the need to sell assets to generate cash. Because the income is ‘natural’ (i.e. produced by the portfolio itself) investors should receive a predictable cash flow during retirement.
For the early/active stage of retirement, when there are likely to be higher income needs that go along with an active lifestyle, natural income funds can offer consistent payouts to cover discretionary spending without depleting principal. Equally, during the mid-retirement stage they can provide a steady income stream when spending is relatively flexible but may need supplementation depending on the fund’s yield.
A hybrid approach to decumulation
The WS Canlife Diversified Monthly Income Fund can also form part of a hybrid approach to decumulation, whereby an annuity is blended with other investments to create an income/growth portfolio. This can appeal to clients needing greater certainty of income than that offered by a natural income fund but still requiring some flexibility. The annuity and any state pension covers the client’s essential needs, the natural income fund supplies additional, regular lifestyle income (discretionary spending) and the growth fund aims to generate capital appreciation as well as being a secondary source of income/capital if needed.
With a greater emphasis on the annuity, this can work particularly well during later retirement, where there is potential for increased essential spending (e.g. healthcare), increased capital preservation concerns, and possibly rising withdrawals. Increasing the annuity portion or emphasising the guaranteed income part is especially valuable for covering rising essential costs such as long-term care.
Our guide, Drip feeding from growth to income, explores how utilising an income fund with steady targeted dividend payments may help in preparing clients for retirement, while managing risks found at decumulation.
WS Canlife Portfolio III-VII Funds
Another key component of our multi asset range is the WS Canlife Portfolio III-VII Funds range, which are risk-targeted multi asset funds that are continually managed within defined risk boundaries. This helps them to maintain a steady focus on delivering good customer outcomes in a consistent and well-controlled manner.
Our Portfolio Funds are aligned to Dynamic Planner’s risk profiles 3 to 7. The funds have also been risk-rated by Synaptics and Defaqto in order to meet the long-term needs of the majority of investors and provide ongoing suitability. Each of the five funds invests in a globally diversified blend of geographies and investment types, with the aim of matching your client’s risk and reward requirements.
The range can be used for the ‘bucket-style’ decumulation strategy, whereby the retirement portfolio is split equally between three funds of varying risk profile, meaning that the overall portfolio risk averages at a moderate level, with income being taken from the low-risk fund while the other two funds are left to grow. This approach has a broad application across the different stages of retirement, as long as regular rebalancing is carried out to ensure that the allocations remain aligned to their targets.
Some of the underlying strategies held in our multi-asset funds
The WS Canlife Sterling Liquidity Fund is a portfolio of high-quality money market assets with a focus on capital preservation, acting as a vehicle for short-term cash requirements.
The portfolio is made up of high-quality commercial paper, certificates of deposit, floating rate notes and short-dated bonds, with the aim of delivering an enhanced return relative to short term bank deposits. As well as the team’s longstanding expertise in sterling bond and money markets, we are also able to utilise the Canada Life Asset Management Credit Research Team, which has in-depth knowledge of individual corporates and sectors, drawing on the firm’s long experience in annuity management. This results in a portfolio of high-quality money market assets with a focus on capital preservation. The term and size of the investments is determined by their credit rating. Typically, the fund will consist of between 40 and 80 issuers, including allocations to highly liquid assets in the form of overnight deposits and short maturities. AAA-rated covered bonds and government/agency assets add an additional level of liquidity.
The WS Canlife Global Equity Fund is a core exposure to the global equity market that flexibly blends top-down macro views and bottom-up stock selection to identify investment ideas in which we have the highest conviction. It is flexible, pragmatic and mindful of prevailing macroeconomic and market conditions.
Specific holdings span a variety of industries, services and geographical locations, allowing the manager to gain targeted exposure. Macro and market views are considered to balance the portfolio across factors such as growth, cyclicality and defensiveness. Additionally, the desired exposure to trends such as in bond yields and commodity prices are key considerations.
The stock selection process itself takes into account several factors including the company’s market position, quality of its brand and underlying assets, how it fits in with current market and economic trends, and the specific drivers behind earnings and dividend growth.
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Investment choices for clients in decumulation
Find further information on decumulation risks and different strategies based on clients' needs
Discover our multi-asset funds
Actively managed, globally-diversified multi-asset funds designed to help advisers and their clients meet their objectives through long-term capital growth and/or income
WS Canlife Sterling Liquidity Fund
Designed to provide institutional investors with a high degree of capital security with daily liquidity.
Important information
The value of investments may fall as well as rise and investors may not get back the amount invested.
This document is issued for information only by Canada Life Asset Management. This document does not constitute a direct offer to anyone, or a solicitation by anyone, to subscribe for shares or buy units in fund(s). Subscription for shares and buying units in the fund(s) must only be made on the basis of the latest Prospectus and the Key Investor Information Document (KIID) available in the Literature section for each fund at https://www.canadalifeassetmanagement.co.uk/
The WS Canlife Sterling Liquidity Fund is a UCITS scheme and a standard variable net asset value (VNAV) money market fund (MMF). The MMF is not a guaranteed investment, nor does it receive external support to guarantee its liquidity. Unlike bank deposits, investment in MMFs can fluctuate and investors’ capital is at risk.