Michael Lough, the lead manager of TD Diversified Monthly Income 
, positions the $594-million fund with the needs of aging, conservative investors in mind.
"The investor base is really the baby boomers," says Lough, "and most investors, while they like to have high returns, are much more concerned about losing their nest-egg. So that's why the stability of the portfolio is critical for us."
Lough's stock-selection process places importance on sustainable income growth. "We're looking for that company that pays a 4% dividend and also grows 4% a year," he says, "so you've got an 8% total return, and we're happy with that."
In positioning the fund for conservative investors, "our stocks aren't going to increase as rapidly as some of those high-flying growth stocks," says Lough, "but when the market turns over and drops, our fund will typically protect the value for the unitholders."
Lough is a vice-president and director, investment management, at TD Asset Management Inc. in Toronto. He has led the equity portion of TD Diversified Monthly Income since June 2008. He's also co-manager, with Doug Warwick, of TD Dividend Growth , TD Dividend Income and TD Monthly Income .
Lough, 55, received a bachelor of commerce degree, with a major in finance, from Concordia University in 1980. Pursuing further studies, he received an MBA from the University of Western Ontario in 1982.
After graduation, he spent a year in a small merger-and-acquisition boutique in Toronto. He then joined Barclays Bank of Canada in 1984. In 1994, he moved to Canada Trust in portfolio investments and joined TD at the time of the TD-Canada Trust merger in 2000. He received the CFA designation in 2003.
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Lough notes that TD Diversified Monthly Income and TD Dividend Growth have many of the same equity holdings but differ in the concentration in positions. The monthly-income fund has the broader mandate of the two, including a large fixed-income component, so its largest equity positions are in the 5% range. TD Dividend Growth, which is more than 90% invested in Canadian equities and has fewer foreign holdings, will have positions ranging up to 7% or 8% of fund assets.
TD Diversified Monthly Income recently held about 40% in financials and 27% in energy, and this level of sector concentration is typical for Lough. Along with stability, "we look for dividends," he says. "Financials and some energy names are exactly what we're looking for, so we tend to have higher weights in those sectors consistently."
The Big Five banks are currently among the largest holdings in TD Diversified Monthly Income. Lough says the banks are still finding a way to "consistently grow earnings of 5% to 10% or more." The political environment in Canada, he adds, is conducive to stability for financial institutions.
Within the energy sector, Lough favours oil-sands producers that have many years of reserves "and are just going to keep pumping out cash flow." Current holdings that reflect this theme include Canadian Oil Sands Ltd. COS and Suncor Energy Inc. SU.
Among the other top holdings in the monthly-income fund is Enbridge Inc. ENB, the pipeline and energy-distribution company. "Enbridge has been promising that they're going to grow 10% to 12% a year for the next five years," says Lough, "and I'm quite confident that they're going to be able to do that." As well, Enbridge's "conservative, non-cyclical business," offers the stability and growth and yield that fit Lough's investment criteria.
Foreign equities currently represent approximately 11% of TD Diversified Monthly Income. Most of these holdings are U.S.-based companies, such as Johnson & Johnson JNJ. Its consumer products and medical and drug divisions are "completely non-cyclical," says Lough. "People are going to keep using their shampoos and drugs." As well, he adds: "The dividend is very solid, it offers decent yields, certainly a lot better than bonds at these rates, plus growth, plus stability."
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