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  • For Advisor Use Only

    TD Low Volatility Equity FundsJune 4, 2015

    Jean Masson, PhDManaging DirectorTD Asset Management Inc.

  • For Advisor Use Only

    Low Volatility Equities: A Different Way of Thinking

    Why do your clients hold equities?

    Why do they hold diversified portfolios?

    1TD Asset Management

    Think about risk-adjusted returns

  • For Advisor Use Only

    Preservation of Capital

    -50%

    -25%

    0%

    25%

    50%

    75%

    100%

    Huge Big Medium Small

    Ret

    urns

    Gains required to recover from losses

    Losses Gains

    2TD Asset Management

    Source: TDAMFor illustrative purposes only

  • For Advisor Use Only

    Std Dev = 10%

    Std Dev = 0%

    Std Dev = 15%

    $321

    $293

    $262

    $100

    $150

    $200

    $250

    $300

    $350

    0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

    Futu

    re v

    alue

    of $

    100

    Time (years)

    Future value of $100Expected annual return = 6%

    Compounded Return = 162%

    Compounded Return = 193%

    Compounded Return = 221%

    Mathematics of CompoundingRewards Low Volatility Investors

    Source: TD Asset Management. For illustration purposes. Up and down returns equally likely.

    Holding the expected return constant, the lower the volatility, the greater the expected compounded return

    TD Asset Management 3

  • For Advisor Use Only

    A Tale of Two Stocks with the Same Average Monthly Return1

    -100%

    -80%

    -60%

    -40%

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    0%

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    Dec

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    Jun-

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    ulat

    ive

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    urn

    Tim Hortons (Volatility = 20%)

    Precision Drilling (Volatility = 60%)

    1: For illustrative purposes only. The dates on the chart were chosen as both stocks had identical arithmetic mean during this time period.Source: TD Asset Management. Total stock return including dividends. Volatility measured as the annualized standard deviation of monthly returns during the period.

    Same Average Monthly Return: 0.7%

    Volatility works against compounding

    TD Asset Management 4

  • For Advisor Use Only 5

    The Risk-Return Relationship Within U.S. Equities

    Higher risk has not translated into higher returns

    0%

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    al R

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    S&P 500 Index Equity Returns and Risks August 1978 thru December 2014

    Safest Moderate risk Riskiest

    Source: Standard & Poor's Note: Quintiles represent equally-weighed portfolios rebalanced monthly from equities sorted by trailing 36 months standard deviation (minimum of 20 months for partial data)Compounded annual returns on S&P 500 constituents. Risk is computed as the standard deviation of monthly quintile portfolio returns over the entire periodFor illustrative purposes only. Please refer to the slide titled References for a list of academic research related to the concepts discussed

    TD Asset Management 5

  • For Advisor Use Only

    Re-Thinking the Risk-Return RelationshipMarket Direction and Pay-off for Stocks in Different Market Conditions

    Investors in high volatility equities typically receive most of their compensation for bearing risk during strong bull markets

    Average return 4%(occurs 12% of time)

    Average return > 4%(occurs 24% of time)

    Strong Up Markets

    -12%

    -8%

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    thly

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    urn

    Safest Moderate risk Riskiest-12%

    -8%

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    thly

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    urn

    Safest Moderate risk Riskiest-12%

    -8%

    -4%

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    thly

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    urn

    Safest Moderate risk Riskiest

    Average return within 4%(occurs 64% of time)

    Strong Down Markets "Normal" Markets

    Source: Standard & Poor's Note: Quintiles represent equally-weighed portfolios rebalanced monthly from equities sorted by trailing 36 months standard deviation (minimum of 20 months for partial data). Average monthly returns on S&P 500 constituents from August 1978 through December 2014. For illustrative purposes only. Please refer to the slide titled References for a list of academic research related to the concepts discussed

    TD Asset Management 6

  • For Advisor Use Only

    The Value-Return Relationship

    0%

    2%

    4%

    6%

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    14%

    Low/MoreExpensive

    Medium High/LessExpensive

    MSCI ACWI Return and ValueJanuary 2000 December 2014

    Ann

    ualiz

    edR

    etur

    n

    Cashflow-to-price ratio

    Stocks with higher cash flow-to-price ratios have posted higher returnsSources: MSCI , Research Insights, TDAM. Quintiles represent equally-weighed portfolios rebalanced monthly from MSCI All Country World Index constituents sorted by cash flow-to-price ratios. Compounded annualized returns on quintile portfolios from January 2000 through December 2014 For illustrative purposes only. Please refer to the slide titled References in the appendix for a list of academic research related to the concepts discussed

    TD Asset Management 7

  • For Advisor Use Only

    The Quality-Return Relationship

    TD Asset Management

    0%

    2%

    4%

    6%

    8%

    10%

    12%

    Low Medium HighLow Medium High

    Stocks with higher returns on equity have posted higher returns

    MSCI ACWI Return and QualityJanuary 2000 December 2014

    Ann

    ualiz

    edR

    etur

    n

    Return on Equity

    Sources: MSCI , Research Insights, TDAM. Quintiles represent equally-weighed portfolios rebalanced monthly from MSCI All Country World Index constituents sorted by most recently published return on equity. Compounded annualized returns on quintile portfolios from January 2000 through December 2014 For illustrative purposes only. Please refer to the slide titled References in the appendix for a list of academic research related to the concepts discussed

    8

  • For Advisor Use Only

    Performance Goals

    For illustrative purposes only

    Low volatility investing seeking attractive returns

    Return

    RiskTraditional Index

    TDAM Low Volatility Equities

    TD Asset Management 9

  • For Advisor Use Only

    A Complete Low Volatility StrategyFour Key Ingredients

    Return Forecasts

    Striving to achieve an effective mix of risk reduction and higher returns

    Trading Costs Portfolio Constraints

    Risk Forecasts

    TD Asset Management 10

  • For Advisor Use Only

    TD Global Low Volatility Fund

    Top 10 Holdings Sector Country

    Lockheed Martin Corporation 1.0 Industrials United States

    Porsche Automobil Holding SE 0.9 Consumer Discretionary Germany

    MTR Corporation Limited 0.9 Industrials Hong Kong

    Cheung Kong Infrastructure Holdings Ltd. 0.9 Utilities Hong Kong

    NTT DOCOMO Inc. 0.9 Telecom Japan

    William Demant Holding AS 0.9 Health Care Denmark

    CK Hutchison Holdings Ltd. 0.9 Financials Hong Kong

    Industrivarden AB 0.9 Financials Sweden

    The Travelers Companies Inc. 0.9 Financials United States

    McDonald's Corporation 0.9 Consumer Discretionary United States

    Top 10 Total 9.1 - -

    Source: TDAM. As at March 31, 2015

    Diversified sources of return

    TD Asset Management 11

  • For Advisor Use Only

    TD Low Volatility Fund PerformanceReturns in Year to March 31, 2015

    As of March 31, 2015 Global 1 Canadian 2 U.S. 3 Emerging Markets 4

    TD Low Volatility Fund Advisor Series 20.2% 10.5% 30.5% 14.0%

    Benchmark 21.0% 6.9% 28.8% 15.2%

    Difference -0.8% 3.6% 1.8% -1.3%

    1 TD Global Low Volatility Fund is benchmarked against the MSCI All Country World Index. Inception Date: November 28, 2011 2 TD Canadian Low Volatility Class is benchmarked against the S&P/TSX Composite Index. Inception Date: September 12, 20123 TD U.S. Low Volatility Fund is benchmarked against the S&P Composite 1500 Index. Inception Date: September 10, 2013.4 TD Emerging Markets Low Volatility Fund is benchmarked against the MSCI Emerging Markets Index. Inception Date: September 10, 2013.Sources: MSCI, Standard & Poor's, TDAM. Numbers may not add due to rounding

    All funds out-performed their benchmarks

    TD Asset Management 12

  • For Advisor Use Only

    TD Low Volatility Fund PerformanceAnnualized Return Volatility since Respective Fund Inception

    As of March 31, 2015 Global 1 Canadian 2 U.S. 3 Emerging Markets 4

    TD Low Volatility Fund 8.2% 7.8% 11.4% 10.9%

    Benchmark 9.9% 10.1% 13.0% 11.4%

    Ratio 0.83 0.76 0.88 0.96

    Inception date November 28, 2011 September 12, 2012 September 10, 2013 September 10, 2013

    1 TD Global Low Volatility Fund is benchmarked against the MSCI All Country World Index. Inception Date: November 28, 2011 2 TD Canadian Low Volatility Class is benchmarked against the S&P/TSX Composite Index. Inception Date: September 12, 20123 TD U.S. Low Volatility Fund is benchmarked against the S&P Composite 1500 Index. Inception Date: September 10, 2013.4 TD Emerging Markets Low Volatility Fund is benchmarked against the MSCI Emerging Markets Index. Inception Date: September 10, 2013.Estimated volatility is approximated as the annualized standard deviation of daily net asset values for the O-Series units of ea

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