Despite record-high assets, Sun Life faces outflows as investors shift toward tech stocks and ETFs
Sun Life Financial Inc. announced an all-time high in assets under management for the third quarter, a milestone attributed to market gains, as reported by BNN Bloomberg.
Despite this growth, the company is facing ongoing outflows as investors withdraw funds.
According to CEO Kevin Strain, the company’s assets have increased 13 percent from the previous year’s third quarter, making Sun Life the largest asset manager in Canada with approximately $1.52tn under management.
However, Sun Life's MFS Investment Management division reported net outflows of $19.1bn during the quarter ending Sept. 30. This latest outflow follows $47.2bn in net outflows from MFS over the preceding three quarters.
“Outflow challenges remain,” Strain noted in an earnings call.
Institutional clients are rebalancing portfolios, a factor Sun Life attributes to the continued outflows, while retail clients are favouring high-growth tech stocks, particularly those in the 'magnificent seven,' and opting for short-term interest-bearing products.
MFS CEO Mike Roberge highlighted that recent quarters were impacted by a strategy that is “underweight mag seven.” Despite this, he noted that the firm anticipates positive momentum in fixed income and a gradual improvement in the outflow trends.
The outflows also reflect a broader trend among retail investors who are gravitating toward exchange-traded funds (ETFs) over mutual funds.
While MFS has a legacy as the originator of the first mutual fund a century ago, it has yet to offer ETFs.
In Canada, ETFs have gained $33bn in new assets in the first half of the year, while mutual funds saw $8bn in outflows, according to TD Securities.
Strain stated that Sun Life is addressing these market shifts by expanding its product offerings, including the planned launch of five actively managed ETFs in December to meet evolving client needs.
“We are confident in the long-term strategy of MFS and the actions they are taking to address these headwinds,” he said.
Sun Life does not anticipate a reduction in revenue from lower fees, as it expects management fees for its active ETFs and fixed-income offerings to align with existing products.
In addition to its ETF expansion, Sun Life is increasing its focus on alternative investments, such as private credit and equity, though the company described this initiative as being in its early stages.
Despite the outflows, Sun Life reported a third-quarter profit of $1.35bn, up from $871m in the same period last year. The underlying net income rose to $1.02bn from $930m, partly due to higher fee income from MFS.
Sun Life also raised its dividend by three cents to 84 cents per common share and continues its share buyback program.
