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Manulife Styles Funds to Post Superior Returns


Participants in Manulife USA lifecycle funds have reaped higher returns on their investment in the last five years than do-it-yourself asset allocations, a recent survey conducted by investment consulting firm Burgess + Associates shows.

During the period from 1999 to 2003, participants directing all their 401(k) contributions to one of Manulife's lifecycle portfolios, which the company calls "lifestyle funds," earned on average 3.4% higher returns than those who selected their own investment options, according to the survey.

In fact, nearly 83% of the participants who picked their own individual funds would have had more money if they contributed to a Manulife Lifestyle Fund. Account balances for non-lifestyle participants would have been, on average, 13.5% higher at the end of the period had they stashed their cash in a lifestyle fund.

Some industry experts think lifecycle funds, also called target-date funds, are the next big thing in retirement savings. A new breed of mutual funds, they offer investors access to multiple asset classes and automatically rebalance to adjust risk as shareholders move closer to their retirement date. Assets held in lifestyle funds rose 68% to $32 billion this year, nearly doubling last year's total, according to Financial Research Corp. of Boston. With $15 billion in its lifecycle portfolios, Manulife certainly commands a large market share of this niche market.

Most fund families that offer lifecycle funds employ them as a default option and typically give shareholders different funds within the sponsoring fund family, oftentimes with a greater number of options than in a retirement account.

"Now we have proof that we've really helped them invest," said Bob Boyda, senior vice president of investment management services at Manulife. "[The study] proves the lifestyle concept that diversification works for people who are accumulating assets and steadies returns. And that steadiness of returns helps them sleep better. So we actually get the buy-and-hold behavior that everybody in this industry likes to talk about."

The study included 90,506 Manulife USA 401(k) plan participants divided into various lifestyle and non-lifestyle categories according to five classifications for risk including conservative, income, growth and income, growth and aggressive growth.

Lifestyle funds differ from a traditional mutual fund in that a traditional mutual fund is targeted at a single asset class, whereas a lifestyle fund has multiple asset classes. Each portfolio is a fund-of-funds consisting of a number of mutual funds. The focus of the product is to make it simpler for the average investor to own institutional-level diversification in a simple package. For example, a shareholder of a Manulife lifestyle fund has access to real estate, international and international small-cap, and can tack on new asset allocations such as Treasury Inflation-Protected Securities (TIPS).

"Our concept was if you could make it easy for investors to get all those benefits--steady returns and simplicity--that is the difference," Boyda said. "When you pick an individual fund, you're sort of putting all of your eggs in one basket." As for their fee structure, Boyda notes that the Manulife lifestyle funds bear similar costs to traditional mutual funds, although they can run five to 10 basis points higher. Overall, expenses for lifecycle funds can vary widely.

Manulife opted to use the term "lifestyle" to describe its asset-allocation offerings rather than "lifecycle" or "target-date" because the company believes it speaks more to the psychological nature of the product. "The idea of helping people invest has to do with their level of comfort," Boyda said. "Shareholders have been through tough, bumpy, up-and-down markets the last five years. Lifestyle funds offer them ease of ownership and confidence in the ability to own these products.

"We tend to think that we've got better proof of concept here on the effectiveness of targeting risk preference or comfort level rather than sort of a mechanical retirement date," Boyda said. He summed up the benefits of his company's lifestyle funds by saying that they are all about "steady returns" and "simple packaging."

In order to manage risk in each of its five portfolios, Manulife employs a very intense evaluation process that includes reviewing fund manager performance and rebalancing at least quarterly. Strategic partner Deutsche Asset Management also reviews the portfolio managers' asset allocation and fund marketing literature, an evaluation that is conducted annually for a period of six to eight weeks.