For this low-vol fund, F is better than A

Price makes all the difference for the fee-based version of Bronze-rated TD Global Low Volatility.

Anum Siddiqui 21 February, 2017 | 6:00PM

TD Global Low Volatility combines a proprietary quantitative model and the judgment of an investment team to create a portfolio of less-volatile securities that does not sacrifice returns. While the team managing this strategy has significant depth, their investment approach doesn’t set them apart from peers. Fees are a key factor for this quantitatively driven strategy, and unlike the fund’s commission-based option, the fee-based series’ competitive price leads to increased conviction in this fund’s ability to outperform over the longer term, resulting in a Morningstar Analyst Rating of Bronze.

TD’s in-house model narrows down a universe of 2500 stocks to a portfolio of securities that have experienced the least amount of volatility over the prior three years. The team found the three-year period to be a sweet spot when referring to historical price data, as it balances both the amount and relevancy of available data. In addition to continuously improving the model, the team will also override the quantitative output when they believe it is necessary. This intervention usually comes in the face of market events such as mergers and acquisitions or company scandals. For instance, the fund exited its position in SABMiller when it was acquired by  Anheuser-Busch InBev (BUD) in 2015.

The fund uses a team-based approach, with the broader low-volatility group split into separate functional teams, including strategy & R&D, data computations, and portfolio management. Lead managers Jean Masson and Wilcox Chan are supported by a deep and stable team of 16 investment professionals and have broader firm resources at their disposal. The team’s compensation arrangement is an area of weakness, however. Unlike other managers at TDAM, the low-volatility team’s compensation is not yet tied to fund performance.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Anheuser-Busch InBev SA/NV ADR67.99 USD-1.31

About Author

Anum Siddiqui

Anum Siddiqui  Anum Siddiqui is an analyst on Morningstar Canada’s manager research team.

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