John Hancock Financial Services of Boston is shaking up the management of its Variable Series Trust I group of variable annuities and life products. It has hired three new sub-advisers, fired another and is planning to make several other sub-adviser changes, according to recent proxy statements filed with the SEC.
The proxy statements outline a switch to a multi-management strategy for some annuity sub-accounts and the replacement of some sub-advisers as a result of poor performance.
John Hancock has hired Morgan Stanley Dean Witter Investment Management of New York to co-manage its Real Estate Equity Fund with Independence Investment Associates of Boston, according to a definitive proxy statement filed Aug. 24. Hancock last approved its contract with Independence Investment Associates in 1994. Since that time, the board of directors has decided that adding another sub-adviser will produce more consistent long-term performance by reducing the risk of sagging performance resulting from just one sub-adviser's investment strategy. The move to add another sub-adviser is prompted by sub-par performance, over the long term, compared to other real estate funds, according to the proxy statement.
While the fund's historical performance lags its peers slightly, its one-year and year to date performance have been strong, according to Morningstar of Chicago. Year-to-date, the fund's sub-accounts have had average returns of 24.04 percent, ahead of the average real estate annuity fund's average of 21.56 percent. One-year returns show the funds' sub-accounts posted an average 18.5 percent return while the one-year average return of its peer group was 12.54 percent. However, the fund's sub-accounts have averaged 9.87 percent over five years while the average real estate annuity reported returns of 10.20 percent over the same period.
Hancock has also hired T. Rowe Price International of Baltimore to manage its International Opportunities Fund and Putnam Investment Management of Boston to manage its Fundamental Growth Fund. T. Rowe Price is replacing Scudder Kemper Investments of Boston and Putnam is replacing OppenheimerFunds of New York, which resigned as sub-adviser June 7, according to the proxy statement. Scudder Kemper was replaced by T. Rowe's international investment arm because the fund's investment focus, and its name, changed. Formerly the Global Equity Fund, the International Opportunity Fund now invests in foreign securities only, necessitating a switch to a sub-adviser " ... dedicated to the development and management of international equity portfolios," according to the proxy statement.
Shuffling sub-advisers is more common for annuities than it is for mutual funds because of the highly competitive nature of the business, said Norse Blazzard, a principal of Blazzard, Grodd, & Hasenauer P.C. of Westport, Conn. More firms are using a multi-managed approach to take advantage of ever-changing investment patterns and to penetrate different sales channels, he said.
"We always like to have the new and improved soap, potato chips or car and the same is true with the financial services industry," Blazzard said.
In the past 10 years, multi-managed annuity sales have taken off while sales of proprietary products have remained stagnant, he said. John Hancock's shuffling of its advisers could be part of the firm's effort to boost sales of variable annuities, he said. The firm is a consistent leader of variable life sales, but is not in the top 20 for annuity sales, he said.
In fact, John Hancock's variable annuity sales have slipped in the past two years, according to VARDS of Marietta, Ga. Annual sales for the firm were $864.4 million in 1998, making the firm 29th in variable annuity sales. Year-end sales in 1999 were $841.4 million, dropping the firm to 30th in variable annuity sales, according to VARDS. Year-to-date as of July 31, sales were $541.9 million.
More management changes are outlined in a preliminary proxy statement John Hancock filed Aug. 23, a day before it filed its definitive proxy statement. The company is seeking to replace three sub-advisers and add two additional firms to co-manage funds, according to the statement.