Investment strategy for participating life insurance product

The investment strategy for the participating life insurance product is based on a thorough knowledge of the role and behaviour of each asset class. This allows them to be combined to take advantage of the portfolio’s long-term horizon and low liquidity requirements, with the target of achieving a high return with a low-to-moderate risk tolerance.

The strategy is based on intelligent risk-taking, which is essential to achieving higher investment returns.

The asset classes and management mandates are chosen in such a way to expose the portfolio to various risks that are well compensated over the long term, notably those related to fluctuations in economic growth, credit risk, or the lesser illiquidity of some assets.
This risk-taking is assumed and controlled with various types of sound diversifications: within an asset class and between class as well as from the temporal standpoint.

Unlike strategies traditionally associated with a low-to-moderate risk tolerance, the PAR strategy we have developed substitutes a portion of what would typically be invested in fixed income and common shares for a mix of alternative investment mix and a specialized strategy called "market neutral".

This approach helps reduce expected volatility through enhanced diversification. It takes into account new sources of returns (including value creation to alternative investments) that are generally less dependent on changes in interest rates and equity markets.
It also targets fixed income segments with higher expected returns, always ensuring that the associated risks are managed with appropriate mitigative measures.

Active management

Our investment strategy for the participating life insurance product also uses active management.

With active management, managers carefully select the securities they want in their portfolio based on their convictions, while controlling the risks inherent to these securities. The goal is to outperform simple index management, which consists of systematically buying all the securities in an index without any special analysis.

This approach has several advantages:

It improves the risk-return profile of a portfolio compared to simple index tracking.
It increases the portfolio’s expected returns without significantly increasing estimated volatility.

Several active strategies are used in the participating life insurance product:

Quantitative or fundamental management of publicity traded assets
Tactical asset allocation (overlay of futures)
Active management of all alternative investments by default (no passive management)

Choosing specific strategies provide another level of diversification, notably with respect to the signals used in different active management approaches. For example, traditional strategies for common shares focus on fundamental analysis of companies, such as their business plan, profitability, management quality, and so on, while tactical asset allocation strategies place more emphasis on analyzing the expected economic conditions.

Composition of the participating policies account (selling products)

As at December 31, 2024

Asset class	Invested assets (M$)	Proportion (%)	Target range (%)
Cash and short-term investments	0	0	0 to 5
Government bonds	9.4	17.8	35 to 55
Corporate bonds	4.7	9.0
Mortgages and commercial loans	9.5	18.0
High-yield bonds	2.4	4.5	5 to 15
Bank loans	2.4	4.5	5 to 15
Preferred shares	2.6	5.0	0 to 10
Fixed income	31.0	58.8	50 to 75
Common shares	5.8	11.0	5 to 25
Private equity	3.2	6.0	0 to 15
Private debt*	3.2	6.0
Infrastructure	4.8	9.1
Real estate	3.2	6.1
Alternative investments	14.4	27.2	20 to 35
Specialized strategy (market neutral)	1.6	3.0	0 to 5
Total	52.8	100

* Private debt is both a form of fixed income and a sub-category of alternative investments. The type of private debt included in the portfolio gives it a projected risk-return profile closer to the other aspects of the alternative investments portion of the portfolio than the fixed income portion.

Rate of return on investments in participating account: 8.29% net of fees 2024 returns

The previously published rate of return for 2023 (8.19%) has been revised for 8.30% following the discovery of an anomaly in the period used for the calculation.

Source : Desjardins Global Asset Management Inc.

Notes: The table above reflects cash investments in the portfolio, which in turn reflect the strategy for the desired portfolio (longer horizon). Futures are used to exercise controlled tactical deviations (over the short term) but aren't represented in the table as they can change quickly.

About the asset classes

Cash and short-term investments

The cash and short-term investments portfolio consists mainly of debt securities with maturities of less than one year. While they are a source of current yields, their primary role is to provide the liquidity necessary to manage the portfolio. Their very low volatility also reduces portfolio risk exposure.

Mortgages and commercial loans

The portfolio contains mostly mortgages issued to businesses and public sector entities for different types of real estate in Canada’s major urban centres. These assets play a similar role to corporate bonds, while providing additional compensation due to their illiquidity.

Government bonds

The government bond portfolio is the defensive part of the strategy. It provides regular interest coupons while reducing portfolio risk exposure.

Corporate bonds and high-yield credit

The portfolio contains bonds issued by Canadian and foreign companies in various sectors. These high-quality, high-yield securities can enhance the portfolio’s performance by providing credit spreads that have historically covered most of the additional credit risk. High-yield securities may include bank loans traded on the secondary market. These loans have similar features to high-yield bonds in terms of their credit risk and expected long-term returns. Since they are variable-rate instruments rather than fixed rate, they diversify exposure to credit risk.

Quality of the bonds and bank loans portfolio

Portfolio allocation credit ratings	Provincial bonds (%)	Corporate bonds (%)	High-yield bonds (Alliance Bernstein) (%)	Bank loans (Alphafixe Fund) (%)	Total weighting (%)
AAA	0	1.2	0	0	0.3
AA+ to AA-	95.9	28.9	0	0	54.3
A+ to A-	4.1	38.6	1.9	0	12.4
BBB+ to BBB-	0	31.3	12.2	5.3	10.6
BB+ to BB-	0	0	50.3	73.4	15.0
B+ to B-	0	0	35.1	21.3	7.3
Below B and unrated	0	0	0.5	0	0.1
Total	100	100	100	100	100

Source: Desjardins Global Asset Management Inc.

Preferred shares

Desjardins Global Asset Management Inc.

Common shares

Common shares are beneficial in a diversified portfolio. They offer potential for long-term growth through capital appreciation and dividends. Owning shares requires accepting fluctuations in companies’ valuations and in the economic cycle. The portfolio is diversified across Canadian, US and international equities (other developed and emerging markets).

Alternative investments

Alternative investments are made up of a number of asset classes which have in common that they are traded outside the markets, resulting in lower volatility and less liquidity. These assets may consist of equities, debt securities or real assets (such as real estate or infrastructure).

These investments also offer good diversification compared to traditional assets. They provide investors with higher returns through compensation for reduced liquidity or they can create value through full asset control and the judicious use of financial leverage.

Specialized strategies

Specialized strategies round out the portfolio. They’re designed to be independent of market direction. The portfolio includes 2 market neutral strategies containing short positions financing long positions in equity market (specific securities, sector indices or regional indices), with net performance on top of the money market returns. This strategy aims to achieve stable positive returns, low volatility and low correlation with the rest of the portfolio

Investment expertise

Policyowners benefit from the expertise of Desjardins Global Asset Management’s (DGAM) specialized portfolio management team. DGAM was founded in 1998 and is today one of Canada’s largest asset managers, with in-house expertise in fixed-income securities, public equities and real assets (infrastructure, real estate) across a variety of investment vehicles.

DGAM also offers strategic asset allocation services to its clients based on their objectives, investment horizon and risk tolerance. As at December 31, 2024, DGAM managed over $118 billion* in institutional assets on behalf of insurance companies, pension funds, endowment funds, non-profit organizations and corporations across Canada.

DGAM’s team of over 100 investment professionals develops in-depth investment strategies. Prudent risk management and responsible investment practices are incorporated into the investment process, creating long-term value for clients. Plus, DGAM has been an active signatory of the Principles for Responsible Investment (PRI) since 2017.

DGAM also teams up with reputable sub-managers for certain asset classes, particularly for high-yield credit and some alternative investments.

* Source: Desjardins Global Asset Management as at December 31, 2024.

This page was prepared by Desjardins Global Asset Management for information purposes only.

The information included in this page is presented for illustration and discussion purposes only. The information was obtained from sources that DGAM believes to be reliable but is not guaranteed and may be incomplete. The information is current as of the date indicated in this page. DGAM does not assumes any obligation whatsoever to update this information or to communicate any new fact concerning the subjects or securities discussed.

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