td low volatility equity funds - cifps · for advisor use only td low volatility equity funds june...

For Advisor Use Only

TD Low Volatility Equity FundsJune 4, 2015

Jean Masson, PhDManaging DirectorTD Asset Management Inc.


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…


Preservation of Capital

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Gains required to recover from losses

Losses Gains

2TD Asset Management

Source: TDAMFor illustrative purposes only


Std Dev = 10%

Std Dev = 0%

Std Dev = 15%

$321

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Time (years)

Future value of $100Expected annual return = 6%

Compounded Return = 162%



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


A Tale of Two Stocks with the Same Average Monthly Return1

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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


For Advisor Use Only 5

The Risk-Return Relationship Within U.S. Equities

Higher risk has not translated into higher returns

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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



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

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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



The Value-Return Relationship

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MSCI ACWI Return and ValueJanuary 2000 – December 2014

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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



The Quality-Return Relationship

TD Asset Management

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Stocks with higher returns on equity have posted higher returns

MSCI ACWI Return and QualityJanuary 2000 – December 2014

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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


Performance Goals

For illustrative purposes only

Low volatility investing seeking attractive returns

Return

RiskTraditional Index

TDAM Low Volatility Equities



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 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 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 Low Volatility Fund PerformanceAnnualized Return Volatility since Respective Fund Inception


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 each respective fund.Sources: MSCI, Standard & Poor's, TDAM. Numbers may not add due to rounding

All funds delivered less volatile returns than their benchmarks



TD Low Volatility Fund PerformanceSharpe Ratio since Respective Fund Inception


TD Low Volatility Fund 2.4 1.7 2.9 1.0

Benchmark 2.0 1.1 2.4 1.2

Difference 0.4 0.6 0.5 -0.2

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.The Sharpe Ratio is a measure of a stock’s risk adjusted performance and has been approximated based on daily net asset value for the O-Series units of each fund.Sources: MSCI, Standard & Poor's, TDAM. Numbers may not add due to rounding


All funds delivered Sharpe ratios in excess of 1.0


Growing Interest in Low Volatility Investing

1 Funds launched on September 10, 2013 Source: TDAM. As of December 31, 2014. Assets under management for TD Asset Management Inc. and TDAM USA Inc.

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AUM

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Global (DM+EM)Global DevelopedCanadaU.S.¹Emerging¹

$9.9 billion in assets under management

Low Volatility Equities Under Management



Low Volatility Solutions

TD Canadian Low Volatility Pool

TD U.S. Low Volatility Fund

TD Emerging Markets Low

Volatility Fund


Geographic Focus

Goal Seek to outperform relevant broad market indices over a full market cycle, while taking on less risk

Assets Under Management1 $1.1 Billion $110 Million $46 Million $5.4 Billion

Solutions that seek to help provide better returns relative to equity markets with lower volatility

1The assets under management figures shown are for TD Asset Management Inc. Source: TDAM. As at March 31, 2015



Equity Market Volatility on the Rise?

Central banks have been extremely accommodative since 2008– Interest rates have been low and stable– Equity returns have been strong, with muted volatility

The U.S. Federal Reserve has ended its bond purchase program– The Bank of Japan and the European Central Bank are still active

Geo-political tensions are high– Russia – Ukraine– Iraq - Syria

TD low volatility equities designed for volatile equity market environments

Source: TD Asset Management (TDAM). As at March 31, 2015



Supporting Information


TD Global Low Volatility FundPerformance

As of March 31, 2015 3 months 1 Year 3 Years Since Inception¹

Estimated Volatility2

Estimated Sharpe Ratio3

TD Global Low Volatility Fund – Advisor Series 10.8% 20.2% 17.4% 18.0% 8.2% 2.4

MSCI All Country World Index (CAD) 11.9% 21.0% 19.8% 22.1% 9.9% 2.0

Difference -1.1% -0.8% -2.5% -4.0% -1.7% 0.4

1 Inception Date: November 28, 2011 2 Estimated volatility is approximated as the annualized standard deviation of daily net asset values for the O-Series units of the fund. 3 Sharpe Ratio is a measure of a stock’s risk adjusted performance and has been approximated based on daily net asset value for the O-Series units of the fundSource: MSCI, TDAM. Numbers may not add due to rounding

Higher return per unit of risk

-6%-4%-2%0%2%4%6%8%

10%Advisor Series Net Monthly Returns Since December 31, 2011


MSCI AC World Index ND - C$



TD Canadian Low Volatility ClassPerformance

1Inception Date: September 12, 2012. 2Estimated volatility is approximated as the annualized standard deviation of daily net asset values for the O-Series units of the fund 3Sharpe Ratio is a measure of a stock’s risk adjusted performance and has been approximated based on daily net asset value for the O-Series units of the fundSources: TMX Group, TDAM. Numbers may not add due to rounding

Similar returns as cap-weighted index since inception with less volatility

As of March 31, 2015 3 months 1 Year Since Inception¹



TD Canadian Low Volatility Class – Advisor Series 2.6% 10.5% 12.1% 7.8% 1.7

S&P/TSX Composite Total Return Index 2.6% 6.9% 11.4% 10.1% 1.1

Difference 0.0% 3.6% 0.7% -2.3% 0.6

20

-6%

-4%

-2%

0%

2%

4%

6%Advisor Series Net Monthly Returns Since October 31, 2012

TD Canadian Low Volatility ClassS&P/TSX Composite TR - C$

TD Asset Management


TD U.S. Low Volatility FundPerformance

1Inception Date: September 10, 2013. 2Estimated volatility is approximated as the annualized standard deviation of daily net asset values for the O-Series units of the fund 3Sharpe Ratio is a measure of a stock’s risk adjusted performance and has been approximated based on daily net asset value for the O-Series units of the fundSources: TMX Group, TDAM. Numbers may not add due to rounding

Similar returns as cap-weighted index since inception with less volatility




TD U.S. Low Volatility Fund (CAD)– Advisor Series 12.0% 30.5% 34.1% 11.4% 2.9

S&P Composite1500 – Net Dividend Index (CAD) 10.8% 28.8% 32.2% 13.0% 2.4

Difference 1.3% 1.8% 1.9% -1.6% 0.5

-4%

-2%

0%

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Advisor Series Net Monthly Returns Since October 31, 2013


S&P 1500 - ND US$



TD Emerging Market Low Volatility FundPerformance




TD Emerging Market Low Volatility Fund – Advisor Series 8.4% 14.0% 12.2% 10.9% 1.0

MSCI All Country Emerging Market Index (CAD) 11.8% 15.2% 15.0% 11.4% 1.2

Difference -3.3% -1.3% -2.8% -0.5% -0.2

1 Inception Date: September 10, 2013 2 Estimated volatility is approximated as the annualized standard deviation of daily net asset values for the O-Series units of the fund. 3 Sharpe Ratio is a measure of a stock’s risk adjusted performance and has been approximated based on daily net asset value for the O-Series units of the fundSource: MSCI, TDAM. Numbers may not add due to rounding

Slightly lower risk-adjusted return during short life

TD Asset Management

-6.00%-4.00%-2.00%0.00%2.00%4.00%6.00%8.00%

10.00%12.00%

Advisor Series Net Monthly Returns since October 31, 2013

TD Emerging Markets Low Volatility Fund

100% MSCI Emerg Mkt ND -C$

22


TD Low Volatility Fund Characteristics

Characteristicsas of March 31, 2015

TDCanadian Low Volatility

Fund

S&P/TSX Composite Index

TDGlobal Low Volatility

FundMSCI ACWI

Beta 0.67 1.00 0.67 1.00

# of Holdings 107 246 288 2465

Market Capitalization (average, C$ billion) 28.7 38.3 65.0 113.7

Price / Earnings 18.4 20.6 15.6 19.2

Dividend Yield (average) 3.0% 2.8% 3.2% 2.4%

Inception date September 12, 2012 November 28, 2011

Source: Wilshire, Style Research, RiskMetrics, TDAMNote: Canadian dollar returns used for standard deviation and tracking error calculations. Please see important disclosure at the end of this document. Please refer to the slide titled ‘Definitions’ in the appendix for a list of definitions for the terms used in this slide

Higher dividend yields and lower Price/Earnings ratios



0% 5% 10% 15% 20% 25%

Consumer Discretionary

Consumer Staples

Energy

Financials

Health Care

Industrials

Information Technology

Materials

Telecom Services

Utilities

Sector Allocation

TD Global Low Volatility FundMSCI All Country World Index

TD Global Low Volatility Fund vs. MSCI All Country World Index

Source: MSCI, TDAM. As of March 31, 2015

More Telecoms and Utilities, Less Info Tech

GICS Sector Weights



TD Global Low Volatility Fund vs. MSCI All Country World Index

0% 10% 20% 30% 40% 50%

Other

Taiwan

Sweden

South Africa

Australia

China

Germany

Singapore

Malaysia

Hong Kong

United Kingdom

Canada

Japan

United States

Country Allocation

Country Weights


MSCI All Country World Index

Source: MSCI and TDAM. As of March 31, 2015

Underweight U.S. and Australia, overweight Japan and Canada



0% 5% 10% 15% 20% 25% 30% 35% 40%


Consumer Staples

Energy

Financials

Health Care

Industrials


Materials

Telecom Services

Utilities

Sector Allocation

TD Canadian Low Volatility ClassS&P/TSX Composite Index

TD Canadian Low Volatility Class vs. S&P/TSX Composite Index

Source: Standard & Poor’s and TDAM. As of March 31, 2015

GICS Sector Weights

Balanced sector exposures



0% 5% 10% 15% 20% 25%


Consumer Staples

Energy

Financials

Health Care

Industrials


Materials

Telecom Services

Utilities

Sector Allocation


S&P 1500

TD U.S. Low Volatility Fund vs. S&P 1500 Index


More Utilities, Less Energy

GICS Sector Weights



0% 5% 10% 15% 20% 25% 30%


Consumer Staples

Energy

Financials

Health Care

Industrials


Materials

Telecom Services

Utilities

Sector Allocation

TD Emerging Market Low Volatility Fund

MSCI AC Emerging Market Index

TD Emerging Market Low Volatility Fund vs. MSCI All Country Emerging Market Index


More Telecoms and Utilities, Less Info Tech

GICS Sector Weights



0% 5% 10% 15% 20% 25%

OtherTurkey

IndiaColombiaIndonesiaThailand

PhilippinesBrazilQatarChile

South AfricaSouth Korea

ChinaTaiwan

Malaysia

Country Allocation

Country Weights

TD Emerging Market Low Volatility Fund

MSCI All Country Emerging Market Index

TD Emerging Market Low Volatility Fund vs. MSCI All Country Emerging Market Index

Source: MSCI and TDAM. As of March 31, 2015

Underweight China and Brazil,overweight Taiwan, South Africa and Malaysia



TDAM’s Low Volatility Equity Team

Jean Masson, Ph.D.Managing Director

Head of Quantitative Research27 years experience

Strategy R&D Data & Computations

Tianyu Tan, Ph.D.1 year experience

Belchir Sellami1 year experience

Miroslav Stankovic25 years experience

Julien Palardy, CFA8 years experience

Yuriy Bodjov, CFA21 years experience

Marius Tulcan20 years experience

Charles Vanasse27 years experience

Wilcox Chan, CFA, FRM15 years experience

Portfolio Management

Trading

Combining skills with experience

Craig Gaskin, CFA22 years experience

Roberta Pigat25 years experience

Judy Nishimura, CFA21 years experience

Carlos Phillips1, CFA5 years experience

Joseph Pilato6 years experience

New hire

Risk Management with 25+ team members


1 Carlos Phillips also has responsibilities as an analyst on the Strategy R&D team. As at December 31, 2014. TDAM operates through TD Asset Management Inc.


References Fama, Eugene F.; French, Kenneth R. (1992). "The Cross-Section of Expected Stock Returns". Journal of

Finance 47 (2): 427–465.

Fama, Eugene F.; French, Kenneth R. (1993). "Common Risk Factors in the Returns on Stocks and Bonds". Journal of Financial Economics 33 (1): 3–56.

Fama, Eugene F.; French, Kenneth R. (2012). "Size, Value, and Momentum in International Stock Returns". Journal of Financial Economics 105 (3): 457–472.

Novy-Marx, Robert. 2013. “The Other Side of Value: The Gross Profitability Premium.” Journal of Financial Economics, forthcoming.

Greenblatt, Joel. 2010. “The Little Book That Beats the Market.” John Wiley & Sons, Hoboken, New Jersey.

Graham, Benjamin. 1973. The Intelligent Investor (4th Rev. ed.). Harpers & Row, New York, New York.

Haugen, Robert and Nardin Baker (1991), “The Efficient Market Inefficiency of Capitalization-Weighted Stock Portfolios”, Journal of Portfolio Management, vol. 17, No.1, pp. 35-40.

Robert Haugen and Nardin Baker (1996), “Commonality of the Determinants of Expected Stock Returns”, Journal of Financial Economics, Vol. 41, No 3, pp. 401-439.

Baker, Nardin and Robert A. Haugen (2012), “Low Risk Stocks Outperform within All Observable Markets of the World” (Working paper available at SSRN).



DefinitionsBook to Price: The ratio of a stock’s book value of net assets per share to its stock price.

Cashflow to Price: The ratio of a stock’s cashflow per share to its stock price.

Earnings Yield: The ratio of a stock’s earnings per share to its stock price.

Dividend Yield: The ratio of a stock’s dividend per share to its stock price.

Distance to Default: A measure of a company’s risk of defaulting on its debts and obligations.

Return on Equity: A company’s net income as a percentage of its shareholder’s equity.

Alpha: The excess return of a stock relative to a given benchmark.

Beta: The sensitivity of a stock's value to changes in the broader stock market.

Price Earnings Ratio: The ratio of a stock's price per share to its earnings per share.

Market Capitalization: The market value of a company's outstanding shares.



DisclaimerThe statements contained herein are based on material believed to be reliable. Where such statements are based in whole or in part on information provided by third parties, they are not guaranteed to be accurate or complete. The information does not provide individual financial, legal, tax or investment advice and is for information purposes only. Graphs and charts are used for illustrative purposes only and do not reflect future values or changes. Past performance is not indicative of future returns. TD Asset Management Inc. (TDAM), The Toronto-Dominion Bank and its affiliates and related entities are not liable for any errors or omissions in the information or for any loss or damage suffered.Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the fund facts and prospectus, which contain detailed investment information, before investing. The indicated rates of return are the historical annual compounded total returns for the period indicated including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed or insured, their values change frequently and past performance may not be repeated.Mutual fund strategies and current holdings are subject to change.TD Mutual Funds and the TD Managed Assets Program Portfolios (collectively, the "Funds") are managed by TD Asset Management Inc., a wholly-owned subsidiary of The Toronto-Dominion Bank. TD Investment Services Inc. and TD Waterhouse Canada Inc. (Member – Canadian Investor Protection Fund) are each principal distributors of certain series of certain Funds. TD Investment Services Inc. makes available those series of those Funds for which it is a principal distributor. The Funds are also available through TD Waterhouse Canada Inc. and through independent dealers.Certain statements in this document may contain forward-looking statements (“FLS”) that are predictive in nature and may include words such as “expects”, “anticipates”, “intends”, “believes”, “estimates” and similar forward-looking expressions or negative versions thereof. FLS are based on current expectations and projections about future general economic, political and relevant market factors, such as interest and foreign exchange rates, equity and capital markets, the general business environment, assuming no changes to tax or other laws or government regulation or catastrophic events. Expectations and projections about future events are inherently subject to risks and uncertainties, which may be unforeseeable. Such expectations and projections may be incorrect in the future. FLS are not guarantees of future performance. Actual events could differ materially from those expressed or implied in any FLS. A number of important factors including those factors set out above can contribute to these digressions. You should avoid placing any reliance on FLS.TD Asset Management operates through TD Asset Management Inc. in Canada and through TDAM USA Inc. in the United States. Both are wholly-owned subsidiaries of The Toronto-Dominion Bank.The TD Bank Group means The Toronto-Dominion Bank and its affiliates, who provide deposit, investment, loan, securities, trust, insurance and other products or services.

Standard deviation is a statistical measure of the range of a security’s performance. When a security has a high standard deviation, its range of performance has been very wide, indicating that there is a greater potential for volatility than those with low standard deviations.Sharpe Measure is a ratio of returns generated by the fund, over and above risk-free rate of return and the total risk associated with it and can change monthly. A high and positive ratio shows superior performance and a low and negative ratio is an indication of unfavourable performance.The index returns are shown for comparative purposes only. Indexes are unmanaged and their returns do not include any sales charges or fees as such costs would lower performance. It is not possible to invest directly in an index.All trademarks are the property of their respective owners.® The TD logo and other trade-marks are the property of The Toronto-Dominion Bank.


td low volatility equity funds - cifps · for advisor use only td low volatility equity funds june...

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