There was a whole lot of shaking going on in world markets last year. Stock markets went from deep bear to a strong bull, oil prices rose – and American voters elected Donald Trump as president.

For families of segregated funds, all this excitement roiled investor sentiment, making it a tough investment year, with many firms struggling to get very strong returns.

None of the seven largest segregated fund families – which hold more than 90% of seg fund assets under management (AUM) in Canada – had more than 58.3% of long-term AUM in funds ranked in the first or second performance quartiles for the year ended Dec. 31, 2016, according to Morningstar Canada data.

The only strong performer was Royal Bank of Canada‘s seg fund family, which had 87.7% of long-term AUM in seg funds in the top two performance quartiles – and it’s a comparatively small family, with just $989.3 million in AUM as of Dec. 31. (All firms are based in Toronto unless otherwise noted.)

It’s often easier for small seg fund families to perform well; there are usually a few large seg funds that are major determinants of the family’s overall performance. In this case, RBC Select Conservative GIP Fund, RBC Canadian Dividend GIP Fund and two of the three versions of RBC Select Balanced GIP Fund were in the second performance quartile. That accounted for $502 million in the seg funds’ AUM.

As most of the big seg fund families offer a wide range of funds, covering the whole spectrum of mandates and investment styles, it’s not unusual for some seg funds to do well while others experience weaker performance in any given year. That was certainly the case in 2016.

Although the performance of the seven big seg fund families – those run by CI Investments Inc. (CI), Canada Life Assurance Co., Empire Life Insurance Co. of Kingston, Ont., Industrial Alliance Investment Management Inc. (IA) of Quebec City, Manufacturers Life Insurance Co. of Waterloo, Ont. (Manulife), Winnipeg-based Great-West Life Assurance Co. (GWL) and London, Ont.-based London Life Insurance Co. – didn’t top the charts, each firm had more than 50% of AUM in above-average performing seg funds.

“What I like to see is consistency. I’m pleased that our seg fund families did better than average in the much different investment years of 2015 and 2016,” says George Turpie, senior vice president, investment products with GWL, London Life and Canada Life. All three seg fund families had more than 50% of long-term assets in funds ranked first or second quartile in 2015 as well as in 2016.

Turpie believes this consistent performance is a reflection of how successfully these firms have diversified their seg fund shelves. He notes that all three seg fund families have about 90 seg funds each and many of them are similar.

IA’s performance was similarly the result of a broad range of seg fund offerings. The strategy is to have a shelf of complementary seg funds so that in years when value investing isn’t producing stellar returns, the growth funds provide offsetting good returns, says Pierre Payeur, IA’s director of fund management.

Payeur also credits individual portfolio managers. Some, he says, are nimble enough to alter their approach when financial market conditions change; others are opportunistic, jumping in to buy equities when they are attractively priced.

CI’s and Manulife’s seg fund families also offer a broad variety of funds; in contrast, Empire Life follows a specific investment style. It takes a bottom-up, value-oriented approach.

“We invest in high-quality companies that are out of favour and have a time frame of three to five years,” says Ian Hardacre, chief investment officer with Empire Life. “Our focus is on avoiding permanent loss of capital, so we avoid companies with too much debt on the balance sheet and/or with management teams that might be unethical or dishonest.”

Unlike many value managers, portfolio managers of Empire Life’s seg funds invested in oil and gas, thereby benefiting from the sharp rise in oil prices, Hardacre notes. They did, however, stick to high-quality companies such as Suncor Energy Inc. and Canadian Natural Resources Ltd.

What was interesting at Manulife is that its seg fund family performed much better than its mutual fund family – with 52.9% of seg fund AUM in above-average performing funds vs only 23.3% of its mutual funds.

Part of the reason was that the seg fund versions of Manulife Monthly High Income Fund performed better than the mutual fund versions. This is not usual; the universe against which the mutual fund versions are compared differs from the universe the seg funds are competing against.

Manulife Monthly High Income is the biggest fund for both families – $8.8 billion or 16% of long-term AUM for the mutual fund and $5.3 billion or 14% of AUM for the seg fund, as of Dec. 31. The mutual fund versions were all in the third or fourth performance quartile while the majority of the seg fund versions were in second quartile.

Another factor was that more Manulife seg funds are managed by third-party portfolio managers than is the case for the mutual funds, and the seg fund managers as a group outperformed the internal fund managers.

Brent Wilson, Manulife’s director of investment research and analysis in Toronto, notes that some of the internally managed funds took a conservative defensive approach that, for example, favoured higher-quality fixed-income securities. However, 2016 was a year when higher quality fixed-income securities under-performed lower-quality high-yield investments.

Investing in lower-quality high-yield “was a risk we weren’t running in many portfolios,” Wilson says. He adds that this approach could be a positive in 2017.

At the other end of the spectrum, Co-operators General Insurance Co.’s seg fund family’s relative performance plummeted, with only 19.9% of AUM in above-average performing seg funds vs 83.3% in 2015 and 70.9% in 2014.

Co-operator’s internal investment manager, Addenta Capital Inc., is more of a value manager, says Lucilla Nardi, Co-operator’s assistant vice president for wealth and estate planning sales development: “We don’t take a lot of aggressive or speculative plays. We’re really focused on quality companies with good long-term prospects.”

Nardi says that 2015 and 2014 were more favourable to this approach and adds that the firm’s funds probably didn’t have as much exposure to resources last year as many of their peers.

Primerica Life Insurance Co. of Canada’s seg fund family had just 9.4% of AUM in above-average performing seg funds. The seg funds have target dates; the fixed-income components of the seg funds are increased as the maturity dates become closer.

Primerica Canada takes a conservative approach to risk management, which means higher fixed-income allocation than for its peers, says Jeff Dumanski, the firm’s president. For example, its Asset Builder III had 52.7% of AUM and Asset Builder IV had 41.6% of AUM in fixed-income securities, respectively, as of Dec. 31, while the seg funds they’re compared with had no more than 18.9%.

Furthermore, the seg funds’ fixed-income portion is invested only in Government of Canada bonds, which had a negative 0.3% return in 2016 vs about 1.8% for provincial bonds and 3.7% for corporate bonds.

Dumanski adds that the equity portions of Primerica Canada’s seg funds are tilted toward the U.S. to get broader sector diversification and, so, didn’t benefit as much as peers from the big run-up in Canadian stocks last year.

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