Business concentration in the individual segregated fund sector has reached new heights. Today, 75% of assets invested by Canadians are in the hands of only five insurers!
Great-West Life cemented its domination of the individual seg fund sector in 2002. According to research firm Investor Economics, the Winnipeg-based insurer held assets of $10.0 billion on December 31, 2002, for a 25.8% market share, up from 23.6% a year earlier. Manulife Financial (15.5%) and Maritime Life (11.1%) ranked second and third respectively (see table).
A look at the assets controlled by the other members of the Canadian top five – Sun Life Financial and Industrial Alliance, along with the anticipated union of Great-West and Canada Life – reveals that five insurers now control 75% of the assets in the sector.
This data points to concentration that far surpasses that observed among mutual fund promoters. For instance, Investors Group, RBC Funds, AIM, Trimark, Mackenzie and TD Mutual Funds wield control over 42% of assets, according to data from the Investment Funds Institute of Canada. The figure rises to 49% if Fidelity Investments is added to the list, given that the same corporation owns Mackenzie and Investors Group.
For seg funds and mutual funds alike, last year’s market downturn compressed assets under management. The mutual fund industry recorded an 8.2% decrease in assets in 2002, vs. 8.6% for seg funds assets.
Insurers Canada Life and Transamerica were hit hardest, with assets plunging 29.7% and 25.2% respectively in 2002.
“We mainly have growth funds and index funds,” explained Jonathan Cotie, Sales and Investment Manager at Transamerica Life Canada. “Certainly, the events of last year did not help the funds. But we have a long-term vision. Too many managers change the mix of their funds in response to economic conditions. We, on the other hand, are absolutely committed to keeping our style and management philosophy intact.”
“In addition, instead of getting bogged down in issues that are out of our control, such as the economic slowdown or geopolitical problems, we prefer to focus our energy on other matters. New product launches, such as guaranteed investment certificates that mirror stock indices or new bond funds, are a few examples.”
In the fourth quarter of the year, Transamerica’s seg fund assets grew by 3.5%, slightly ahead of the 3.2% advance the industry posted for the same period.
Investor confidence is difficult to revive after the recent market turmoil, says Serge Pépin, Research and Return Analysis Director at Maritime Life. And the geopolitical context is not helping either. “We have noticed early signs of a return of confidence, but it’s a long, steep slope to climb. The message recently transmitted to advisors reflects this situation: Focus on your long-term financial objectives. Don’t lose track of your fundamental values.”
Mr. Pépin considers that two categories of funds are attracting growing interest, both at Maritime Life and in the industry as a whole. Money market funds and balanced funds (mostly Canadian) should continue to boost seg fund profitability over the next six to eight months, he predicts.
In 2002, Maritime Life posted a 12.8% drop in seg fund assets, despite gains of 4.0% in the fourth quarter.
In mutual funds, AGF reported the largest drop in assets among companies with $10 billion or more. In a 12-month period, assets diminished by 18.6%. “Our funds are 80% invested in equity. It just so happened that last year, the Canadian market lost 12% and the U.S. market 21%. In these conditions, negative results are inevitable,” said Clive Coombs, Executive Vice-President at AGF.
Bond funds actually helped staunch the hemorrhaging, said Mr. Cotie. “The return of the bond market gave bond funds and balanced funds a much needed shot in the arm.”
“The economic slowdown of the past few years, coupled with political tensions, are still weighing heavily on the fund industry,” added Mr. Coombs. “As soon as the Iraq problem is settled, people will breathe easier and the market will start to revive. That’s why I am optimistic about the future, but still realistic.”