Management (TDAM) Mitigating Risk in Times of Uncertainty with - - PowerPoint PPT Presentation

TD Asset Management (TDAM)

Mitigating Risk in Times of Uncertainty with Fixed Income ETFs

Michael Craig, CFA Managing Director Head of Asset Allocation & Derivatives Scott Colbourne, CFA Managing Director Moderated by: Kim Parlee, VP , TD Wealth

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• A New Approach to Portfolio Construction
• TDAM Fixed Income Capabilities
• Fixed Income ETF Solutions

Agenda

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A New Approach to Portfolio Construction

Is there a better way to get to your clients destination?

• Improve diversification with Factors
• Portfolio allocations should be driven by Exposure not "weight"
• Understand the new role of fixed income

A New Approach To Help Meet Clients Unique Needs

A new approach to meet client's unique needs

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The Journey to the Destination Matters

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Factor Exposures Should Take a Holistic View

Interest Rates Credit Currency Purchasing Power Liquidity

Fixed Income Risk Factors

• Many manage fixed income investments

along a spectrum, failing to take a holistic view

• Reality is much more complicated, and

ignoring embedded risks has consequences for portfolio construction

• Many of the same risk factors present in

fixed income are also present in equities

Credit Rates

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What is a Factor Exposure?

Nutrients of Asset Classes = Factor Exposure

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Fixed Income Corporate Bonds 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Corporate Bond ETFs Contribution to Risk (%) Fixed Income Term Premium Equity

Mitigating Outside & Inside Risks

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Moving to a Factor Based Approach

How Does a Traditional Portfolio Look Under the Factor Microscope?

60% 5% 25% 10% MSCI World Short-Term Bond Investment Grade Universe High Yield Bond 54% 6% 25% 15% Equity Risk-Free Currency Interest Rate Factor

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Moving to a Factor Based Approach

How Does a Traditional Portfolio Look Under the Factor Microscope?

60% 5% 25% 10% MSCI World Short-Term Bond Investment Grade Universe High Yield Bond 54% 6% 25% 15% Equity Risk-Free Currency Interest Rate Factor

Traditional approach does not line up perfectly in terms of factors.

40% Bonds 15% Bonds

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Is the Role of Fixed Income Evolving?

• 5%

0% 5% 10% 15% 20%

3yr Rolling Fixed Income Returns vs Yield

Return from Yield Return from Capital Gains Yield

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• Delivers a Yield Advantage with Less Risk
• Is a Powerful Diversifier to Equities
• Adds Value Through Tactical Shifts as Factor Relationships Change
• Understands When to Pay for Active

A Factor Optimized Fixed Income Portfolio

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TDAM Offers the Ingredients and a Packaged Solution

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TD Asset Management

Fixed Income Capabilities

Fixed Income Investment Management

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Portf tfolio

• lio Managemen

agement t focused on

• maximizing yield, minimizing risk
• capitalizing on opportunities, avoiding threats

Experience Independence Scalability

Credit it Analy lysts sts publish independent ratings and proprietary research Trading ing Desk implement investment decisions, ensuring best execution

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• Fixed Income Assets Under Management C$157.8 B1

Deep and Experienced Fixed Income Team

70% 11% 8% 11%

Canadian Bonds Global Bonds Short Term & Money Market Synthetics

20+ Portfolio Managers 16+ Credit Research Analysts 6+

Client Portfolio Managers

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The Investment Opportunity Set

Seeking to add value across sectors

Global Macroeconomic Analysis Tactical Allocation Decision

Domestic Corporate Inflation Linked Global Corporate Emerging Markets

Mortgage and Real Estate

Private Debt High Yield & Leveraged Loans

Canadian Core Universe

Fixed Income Universe

• Credit Quality
• Relative Valuation
• Breakeven inflation rates
• Fiscal/Political Environment
• Diffusion/Surprise Indices
• Currency Analysis

Domestic Government Global Government

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Proprietary Credit Analysis

Independent Research, Original Thought

TDAM Internal Research Metrics

TDAM Credit Rating A+ Fundamental Stability Score 1/10

Relative Value

Recommendation

Pick or Pan ESG Score 4/10

TDAM internal credit rating implying probability

• f default

Analysts review relative pricing and compare to implied fundamental value Internally developed metric displaying relative stability of an issuer TDAM Maintains an ESG database and an internal ESG scale & score

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Cross Functional Collaboration

Independent credit rating Credit volatility and risk score

Credit Research Portfolio Management

Stability of sector and entity Volatility of financials Relative risk valuation Forward looking adjustments Industry analysis Management team Event risk Asset quality Asset performance Credit enhancement Structural features

Credit Research & Portfolio Management

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Fixed Income ETF Solutions

TDB TD Canadian Aggregate Bond Index ETF

✓ ✓

TCSB TD Select Short Term Corporate Bond Ladder ETF

✓ ✓

TCLB TD Canadian Long Term Federal Bond ETF

✓

TUHY TD Active U.S. High Yield Bond ETF

✓ ✓ ✓ ✓

TUSB TD Select U.S. Short Term Corporate Bond Ladder ETF

✓ ✓ ✓

TULB TD U.S. Long Term Treasury Bond ETF

✓ ✓

TGFI TD Active Global Income ETF

✓ ✓ ✓ ✓

TPRF TD Active Preferred Share ETF

✓ ✓

TPAY TD Income Builder ETF

✓ ✓ ✓ ✓

ETF Factor Exposure - Cheat Sheets

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Canada/U.S. Fixed Income

Equity Interest Rate Currency Illiquidity Alpha

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International/Global Fixed Income Active Income

Not all Fixed Income ETFs offer the same Exposures

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The Evolution of Evaluating Risks

Standard Measures No Longer Suffice

Interest Rate Risk Credit Risk

Corporate

High Yield & Leveraged Loans

Private Debt Inflation Linked Mortgage & Real Estate Sovereign Money Market

Risks Not Captured

• Liquidity
• Currency
• Purchasing Power

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An All-in-One Fixed Income ETF

TD Income Builder ETF (TPAY) - Summary An all all-in in-one

• ne fixed

ed incom

• me solution

tion, focused on providing broad

• diversification
• income
• stability

Simplicity Improved Outcomes Exceptional Value

Activ tive & & Tactic tical al Manage agement ment, with underlying active ingredients Flexibil ibilit ity to proactively adjust positioning for evolving market environment

Professionally Managed Fixed Income ETFs Allocated by an Experienced Asset Allocation team

Initial Portfolio Construction

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45% 30% 10% 5% 5% 5%

TD Canadian Aggregate Bond Index ETF (TDB) TD Select Short Term Corporate Bond Ladder ETF (TCSB) TD Active Global Income ETF (TGFI) TD U.S. Long Term Treasury Bond ETF (TULB) TD Canadian Long Term Federal Bond ETF (TCLB) TD Active U.S. High Yield ETF (TUHY)

• Core

re Canadian Bond Unive verse rse Exposu sure.

• re. Stab

tability, ty, dive versi rsifi ficati tion and yield yield

• Yield enhanceme

ment, t, low w durati ration

• Durati

ration ma manageme ment

• Durati

ration ma manageme ment, t, defen fensive sive, USD exposu sure re

• Yield enhanceme

ment, t, cred redit t ma manageme ment

• Yield enhanceme

ment, t, cred redit t ma manageme ment, t, global dive versi rsifi ficati tion

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Benefits of an All-in-One Solution

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We understand the dual role of fixed income and aim to be a stron

• ng diversif

ifier er with equities especially in bear-markets Managed for Tomorrow Ac Acti tive e Managemen ement t + Tactic ical l Asset et Allocati tion

• n = Su

Substantial tantial Flexib xibili ility y Seeking ing Higher er Yields vs. Benchmark & GIC's Compe peti titi tivel ely y Pri Priced ced Active Product

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Gives more time to the advisor to manage their client relationships

Thank You!

Questions?

Disclosure

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