TD Monthly Income Fund Review

The TD Monthly Income Fund is one of Canada’s most popular mutual funds, with nearly C$8 billion assets. The fund’s primary objective is to provide holders with consistent dividend income every month, and the secondary aim is to provide capital appreciation over time.

TD Monthly Income Fund Overview

Return

Over the last ten years, the fund has returned 6.7% annually and between 1.5% – 2% in dividend yield (depending on NAV Performance), comfortably above inflation with the surety of passive income. It has a minimum initial investment of C$100 followed by incremental investments as low as C$25 through a monthly purchase plan. The fund has an expense ratio of 1.48% annually.

Holdings

The fund has an asset mix of 62% in Canadian equity, 26.1% in Canadian bonds, 3.7% in foreign bonds, 4% in income trust units, 1.4% in international equity, and 2.2% in cash. The asset portfolio is dominated by the debt and equity of large-cap companies in core sectors. Sector leaders primarily dominate these sectors with deep competitive advantages from scale, regulation, or brand value.

The most significant fund holdings by sector holdings are from finance, representing nearly 37% of total assets. The fund holds a large chunk of its equity portfolio in Toronto Dominion, Bank of Nova Scotia, Royal Bank of Canada, Canadian Imperial Bank of Commerce, Brookfield Asset Management, etc. These businesses are relatively safe to invest in and provide steady returns, and healthy dividends, as money relies heavily on trust and is a crucial part of the economy.

The fund’s equity portfolio’s second and third most dominant sectors are the energy (9.9%) and utility sectors (5.7%). Canada is exceptionally gifted in terms of natural resources. However, this sector benefits heavily from high barriers to entry due to capital cost, the immense lobbying power of incumbents, heavy regulation, and sustained demand from heating or cooking requirements.

Low-Risk Sector Benefits

This sector enjoys additional advantages, namely, operating leverage from favourable commodities prices, meaning that their selling price goes up with a rise in commodity prices. In contrast, the cost of production doesn’t go up as much, and the second is a very positive tailwind from the rise of ESG. While the rise of ESG investing sounds counter-intuitive to the fortunes of energy commodity producers, the reality is that this trend has deterred further investments in fossil fuel production and exploration, thus leading to a high probability of a demand and supply mismatch, thus leading to a sharp increase in commodity prices such as natural gas and crude oil, in which Canada and its energy sector are incredibly gifted. We are already seeing this trend play out. Some of the most prominent fund holdings from this sector include Suncor Energy and Canadian Natural Resources.

The utility sector makes an excellent investment for the kind of securities the fund requires as their services are non-discretionary; that is, they are necessary for all customers. These include gas and energy infrastructure companies like Enbridge and TC Energy. Apart from the safety of sustained demand for their products, these companies also benefit from heavy regulation and high barriers to entry from capital requirements in the sectors, along with the unparalleled lobbying power of these dominant companies. Apart from power utilities, the company also owns Waste Connections, Canada’s leading waste management company.

The next most significant sector that the fund invests in is Industrials. The company’s largest holdings include Canadian National Railways, Canadian Pacific Railways, Brookfield Infrastructure Partners, and Magna International. Both these railways’ holdings make superb investments as they are heavily regulated. It is nearly impossible for new companies to challenge incumbents in scale and footprint; the sector is a duopoly, and the fund owns both duopoly members. Railways investments are an excellent proxy for economic growth as they are crucial to economic activity, both in terms of freight and transport for people. The sector will dramatically improve profitability with an increase in economic activity over the years, along with a shift to renewable power, which is far cheaper.

The fund is also a prominent investor in the telecommunications sector, which is relatively stable and has high barriers to entry due to capital requirements and regulations. Further, with the rise of IoT, big data, and digitization, a sector is set to boom over the long term. The fund holds 1.2% of its assets in Telus, one of Canada’s largest telecommunications firms.

The rest of the firm’s equity assets are scattered across consumer staples, real estate, materials, IT, healthcare, etc. For example, the firm holds 0.9% of its assets in Dollarama, Canada’s largest retail chain.

Bonds Exposure

The fund also has decent exposure to the US capital markets, as it holds nearly 2% in US equities, 2.5% in US bonds, and 0.2% in US preferred equities.

After equities, the fund’s second-largest holdings are of corporate bonds issued by companies such as the ones mentioned above. The bond portfolio helps the fund lower its risk exposure and goes a long way to ensure that it receives cash-flows, making it much easier for it to service its payout to investors.

Canadian bonds and preferred stock make up 25.2% and 8.2%, respectively. Preferred stock is an instrument on which the issuing company has to pay a return to holders perpetually; it is very similar to a bond, except that it has no fixed maturity. The fund holds 4% of its assets in government-issued debt too, which helps lower the risk profile substantially while being very low interest. About 1.5% of the fund’s NAV is held in global bonds.

Lastly, the fund holds about 2.1% of its assets in cash, partly funded by bank overdrafts, so that it can meet redemption obligations.

Final Thoughts

In an era of all-time high inflation, prudent investing is necessary not just from the perspective of retirement or long-term wealth creation but also for shorter-term returns to meet steeply rising expenses. TD is one of the best monthly income funds is a great product to fit both requirements.


TD Monthly Income Funds

BMO Investment Inc. (BMO Monthly Income Fund) has a high 8% payout that makes your clients drool, but we prefer the TD Monthly Income Fund for its more modest payout. The fundamental difference between the two gigantic monthly income funds lies in their wealth distribution, security selection, and income distribution policies.

The TD Tactical Monthly Income Fund is a fund that aims to provide income with the potential for capital appreciation. The TD Monthly Income Fund provides monthly income and capital appreciation through investments in government bonds of central Canadian banks such as Enbridge, Brookfield Asset Management and CN Rail, and cash and securities. The TD Canadian Money Market Fund invests in high-quality Canadian money market securities that offer high-interest rates while maintaining liquidity and capital.

According to the prospectus, this fund is considered a high-risk fund. Still, its history tells a different story in risk assessment, as it has never invested more than 48.5% in equities in 12 months. Over the past five years, the fund has not performed as well as TD Real Returns Bond Fund, but it still has an impeccable track record in risk management. Nevertheless, the fund has lost 4% (12.2%) over one year, the worst annual return it has ever had (26.2%).

Read the prospectus carefully to understand what you are investing in and the risks involved, as well as the fees associated with investment funds. Read the facts and the fund’s prospectus thoroughly before investing.

Defensive funds in different asset classes are selected based on their ability to manage risk and their long history of more than five years. I know this list promotes high-performing funds, which is exciting for investors, but don’t forget the importance of risk management.

The stated return is the historical total annual return, fewer fees and expenses that the fund has to pay for one year or less, and includes changes in security value, reinvestment of dividends and distributions and does not take into account sales, repayment distributions, optional fees and income taxes payable to the security holders, which may reduce returns. In addition, the returns stated refer to money market funds and do not consider sales, repayments, distributions or optional levies or income taxes paid by shareholders, which can further reduce returns. Fund investors can reinvest dividends or buy more shares.

It is worth comparing the income distribution policies of these two funds. The main objective of these funds is to invest in income-generating securities that provide a steady stream of returns.

Mutual funds are actively managed, which means the portfolio manager follows an index that tries to replicate its returns. In TD’s case, fund managers use many investors “pooled money to build a portfolio by buying the underlying stocks, bonds and other investable assets.

Balanced funds are an excellent way for investors to benefit from returns on equity in defence of bonds. However, the performance of an investment fund does not mean that TD Dividend Income Account (CIS) delivers the same return as the TD CIS.

The Monthly Income Fund is an investor in several neutral Canadian balance sheets metric and product information that provides environmental, social and governance data on the underlying securities of more than 23,000 mutual funds and ETFs; multi-asset classes. The top portfolio holdings of the TD Monthly Income 0p000071LQ fund include stock holdings, annual sales, top 10 holdings by sector and asset allocation information. For the period ending December 31, 2019, the annual management report of TD Mutual Fund (“Fund performance”) TD Mutual Fund (for this period) The fund performance report contains financial highlights but not the complete financial statements of the investment fund.

On July 26, 2018, TDAM lowered the management fees for the TD United States. Equity Portfolio as defined in the TD Mutual Funds Simplified Prospectus and reduced the management fee to $0.30 (from $0.08) per investor and D-Series unit fund. Effective November 1, 2019, there will be no deferred sales fees for backloaded DSC, low-load LSC and low-load 2 (LSC2) purchase options and advisors of the TD Investment Funds’Series A Series T5, T8 and T5, managed by TD through the Asset Program Portfolio that are closed-end purchases for investors, including purchases under the Pre-authorized Contributions Plan.

These changes are designed to provide investors with a broader range of portfolio diversification opportunities and help strengthen TD Asset Management, Inc. (“TDAM”) as the manager of TD Mutual Funds and the existing range of investment solutions. TDAM manages assets on behalf of approximately 2 million retail investors and offers a diversified range of investment solutions, including mutual funds and actively managed portfolios of corporate class funds. In addition, the 14% US Dollar purchase option on certain existing F Series TD investment funds is designed to allow investors to have a wide range of investment alternatives to meet their portfolio needs.

Leading equity managers Doug Warwick and Michael Lough from TD TD Fund Bank of Montreal, a subsidiary of Jones Heward Investment Counsel Inc. (BMO Monthly Income), do not share the same approach to stock selection. Still, their pursuit of returns has them covered in the financial services sector.

I’m young, it’s a lot of money, and I hope to invest it in the future. An analyst is Gregory Kocik, portfolio manager of TDAs and lead manager of the TD High Yield Fixed Income Morningstar Fund.

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