TD Recommended Funds
QUARTERLY UPDATE Spring 2016
Welcome
5-year Return Q1 Markets Performance Highest & Lowest Returns
Most Bought Funds
Fund Changes
Recommended Funds
WELCOME TO THE QUARTERLY UPDATE Spring 2016
Welcome to the latest issue of our quarterly newsletter. Discover how our Recommended Funds have fared in Q1 compared to industry indices, which have produced the highest and lowest returns, plus which funds have been added or removed. Despite the short-term volatility and a challenging quarter, our review of different markets and their performance gives us plenty of reasons to be optimistic. Michelle McGrade, CIO at TD Direct Investing, shares her views on how to invest for the future: “Market volatility has little impact on the long-term performance for most diversified investment portfolios and can present buying opportunities. You’ll only make a loss if you sell when prices are low, so stay invested for long enough and you’ll have a good chance of generating a positive return.
Inside this issue: Welcome to the Quarterly Update Long-Term Performance Summary What Happened Over the Quarter? Highest & Lowest Returning Funds What Funds are you Buying? Changes to the List: Additions & Removals Recommended Funds - Spring 2016
If you are feeling nervous about where markets are heading at the moment, you could seek out alternatives to cash, such as absolute return funds, which aim to deliver positive returns irrespective of market conditions through diversification across a range of asset classes.” Please note that none of the opinions we provide in the TD Recommended Funds Quarterly Update are a personal recommendation, which means that we have not assessed your investing knowledge and experience, your financial situation or your investment objectives. Therefore, you should ensure that any investment decisions you make are suitable for your personal circumstances. If you are unsure about the suitability of a particular investment or think that you need a personal recommendation, you should speak to a suitably qualified financial adviser.
This document does not constitute financial advice. The value of your investments and your income may fall or rise, you may not get back all your invested capital. Past performance is not a reliable indicator of future results. The following information is accurate as at 31.03.2016.
Welcome
5-year Return Q1 Markets Performance Highest & Lowest Returns
Most Bought Funds
LONG-TERM PERFORMANCE SUMMARY 24 of the 28 funds in our Recommended Funds list with a five-year track record delivered a positive absolute return over that period. Over the same time frame the MSCI World index returned 70.7% in euro terms, 37.1% in US dollar terms and 52.9% in sterling terms. Seven of these funds, spread across a broad range of asset classes, outperformed their respective global index, which gives a good demonstration of the power of diversification. The best performing fund over five years to 31 March 2016 is BGF World Healthscience, a dollar denominated fund which invests in companies in the areas of healthcare, pharmaceuticals, medical technology and supplies, and the development of biotechnology. Around 75% of the fund, which returned 89.1% over the period, is invested in the US. Other funds with strong five-year performance are Jupiter JGF European Growth, Fidelity World, Vanguard US 500 Stock Index, Allianz Europe Small Cap Equity, Henderson Horizon Global Technology, Invesco Global Smaller Companies, Fidelity Global Financial Services and Schroder ISF UK Equity. Only four funds are in negative territory, with BGF World Gold and BGF World Energy suffering from the downturn in prices in the energy and commodity sectors. Aberdeen Global Asia Pacific Equities fell just shy of 10% over five years, with Fidelity Emerging Markets just failing to deliver a positive return. Past performance is not a reliable indicator of future results Source: Morningstar Direct as at 31st March 2016. Total returns in the share class currency.
Fund Changes
Recommended Funds
Welcome
5-year Return Q1 Markets Performance Highest & Lowest Returns
Most Bought Funds
Fund Changes
Recommended Funds
WHAT HAPPENED OVER THE QUARTER? n Markets endured an extremely volatile quarter, with global equity markets sustaining significant losses in January. n Equity markets rebounded in mid-February and most have since moved back into positive territory for the year-to-date. n Volatility in the Chinese equity market impacted sentiment across all markets. Its growth remains under scrutiny as it attempts to avoid a hard landing, although there is now a degree of faith it can transition towards a model of slower and more domestically driven growth. n Emerging markets staged a relief rally and look cheap compared to developed markets. n Oil stabilised at around $40 a barrel, which helped markets breathe a sigh of relief. n Gold was the star performer as investors fled to safety, rising 19.1% as investors sought a safe haven from the market volatility. n Other defensive sectors such as utilities, consumer staples, materials and industrials rallied after being weak for most of 2015. n Healthcare, financials and Japanese equities were the major underperformers over the period. n The US market staged its largest quarterly rebound since 1933. n Bonds all delivered a positive return over the period as investors sought safety. The European Central Bank reduced interest rates to a negative level and promised to pour €80m a month into bond markets. Past performance is not a reliable indicator of future results Source: Morningstar Direct as at 31st March 2016. Total returns in USD.
Welcome
5-year Return Q1 Markets Performance Highest & Lowest Returns
Most Bought Funds
Fund Changes
Recommended Funds
HIGHEST & LOWEST RETURNING FUNDS Highest returning funds last quarter
Lowest returning funds last quarter
The best performing funds over the first quarter were those denominated in US dollars. The top performer was BGF World Gold, which gained 39.6% over the period. The fund invests primarily in gold mining companies, which have had a strong rally. The benchmark FTSE Gold Mines index recorded its largest monthly gain in February since September 1988, and the gold price rose 10.4% in February alone.
Fidelity Global Financial Services is euro denominated and invests in companies which provide financial services to consumers and industry. Financials was the second worst performing sector over the quarter, which had a negative impact on the fund’s returns. It was down 9.9% over the three months. Over five years, however, the fund has delivered a positive return, albeit less than the MSCI World index in euro terms.
The rebound in energy and resources is reflected in the strong performance of BGF World Energy, which returned 5.8%. The fund invests the majority of its assets in companies involved in the exploration, development, production and distribution of energy. The largest positions are in Royal Dutch Shell and Exxon Mobil. Other funds which performed well over the quarter cover a diverse array of asset classes and include Schroder ISF Emerging Markets Debt Absolute Return, Henderson Horizon Global Property Equities, Templeton Emerging Markets Bond and Fidelity US High Yield. Schroder ISF Asian Equity Yield was one of the top performers over the period. Asia’s income story is interesting. These are markets which are still inefficient because many Asian investors are traders. Skilled long-term fund managers are able to find growth companies with attractive yields. Emerging markets generally are still developing but we are seeing a fundamental shift in the corporate culture there, with companies starting to think differently about returning assets to shareholders.
Euro denominated funds formed the bulk of the underperformers over the quarter. European equity funds Allianz Europe Small Cap Equity, Jupiter JGF European Growth, NN (L) European High Dividend, Vanguard European Stock Index and Parvest Equity Best Selection Euro were all in negative territory over the period as the Europe ex UK equities sector fell 2.3%. BGF World Healthscience, a fund denominated in US dollars, was the third worst performer over the quarter. Healthcare was the worst performing sector, down 9.4%. Other funds which underperformed include Fidelity World, Pictet Premium Brands and Templeton Global Bond.
Welcome
5-year Return Q1 Markets Performance Highest & Lowest Returns
Most Bought Funds
HIGHEST & LOWEST RETURNING FUNDS
Past performance is not a reliable indicator of future results Source: Morningstar Direct as at 31st March 2016. Total returns in the share class currency.
Fund Changes
Recommended Funds
Welcome
5-year Return Q1 Markets Performance Highest & Lowest Returns
Most Bought Funds
Fund Changes
Recommended Funds
WHAT FUNDS ARE YOU BUYING? A Mixture of Core and Specialist Funds
Most Bought Funds
Despite a challenging quarter for markets, we saw a good flow of fund purchases from our Recommended Funds list by TDDII customers. It is good to see our customers understand the need to continue with a long-term investment plan despite the short-term volatility, particularly when industry wide figures show large numbers of retail investors ran for the door. Those assets went into a range of funds including core equity and specialist funds.
The most popular fund by assets was Vanguard US 500 Stock Index. The fund tracks the S&P 500 index. US large-cap benchmarks are notoriously difficult for active fund managers to beat, so it makes a lot of sense gaining access via such a passive fund. This also reflects a wider move by investors favouring index funds over their active counterparts during periods of extreme market volatility.
TOP 10 MOST POPULAR FUNDS 1. Vanguard US 500 Stock Index
6. BlackRock Global Funds World Healthscience Fund
2. Jupiter Global Fund European Growth
7. BlackRock Global Funds World Gold Fund
3. Vanguard European Stock Index
8. Fidelity Funds Euro Balanced Fund
4. Schroder International Selection Fund UK Equity
9. Henderson Horizon Fund Global Property Equities Fund
5. BlackRock Global Funds World Energy Fund
10. Templeton Emerging Markets Bond fund
The second most bought fund was BlackRock Global Funds – World Gold, which returned a very handsome 39.6% over the first quarter. The fund has benefited from the rise in the gold price as investors sought some security from market volatility. Schroder ISF UK Equity was one of the most bought funds, with customers not afraid to invest in risk assets despite the volatile conditions. European funds JGF Jupiter European Growth, Vanguard European Stock Index and Fidelity Funds – Euro Balanced were also among the most popular as investors saw opportunities in both equity and bond markets across Europe.
Based on TD Direct Investing International customers investing from January to March 2016. The top ten buys should not be taken as a recommendation to buy a particular fund, and it is not intended to offer any form of advice. Instead it is simply an indication of the general buying trends amongst some TD Direct Investing International customers, observed during the period stated.
Fund Changes
Additions & Removals
Welcome
5-year Return Q1 Markets Performance Highest & Lowest Returns
Most Bought Funds
Fund Changes
Recommended Funds
ADDITIONS Jupiter European Growth NEW
Risk Rating
Morningstar Analyst Rating
6/7
TD Initial Charge
0%
Login & Buy
Ongoing Charge
Performance Fee
1.72%
0%
Fund Objective
Why Buy This Fund?
Fund Manager
The fund invests in a range of dynamic, long-term growth companies based in Europe (including the UK) which are exposed to growth in both global trade and productivity. The manager seeks out companies which are able to sustain profit growth and margins over a long period of time, have a good track record of profitability and a proven product and business model.
The fund has a talented, long-standing manager who is part of a highly experienced European equities team, with a diligent process and a consistent approach. Manager Alexander Darwall selects stocks purely from the bottom up, following through fundamental analysis. He likes companies with proven track records and clear business plans and where management teams have demonstrated evidence of entrepreneurial endeavour and good stewardship. This approach leads to a concentrated portfolio which is characterised by large stock, sector and country bets. Darwall’s experience in investing through different market conditions gives him the confidence and skill set needed to run this type of strategy well.
Alex Darwall joined Jupiter in 1995 and has been running its Europe ex-UK sister fund since 2001. He took over this fund in April 2007, running it independently but making use of the skills and experience of the European equity team.
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Welcome
5-year Return Q1 Markets Performance Highest & Lowest Returns
Most Bought Funds
Fund Changes Recommended Funds
ADDITIONS Schroder UK Equity NEW
Risk Rating
Morningstar Analyst Rating
6/7
Login & Buy
TD Initial Charge
0%
Ongoing Charge
Performance Fee
1.66%
0%
Fund Objective
Why Buy This Fund?
Fund Manager
The fund aims to achieve capital growth and income through investing in UK equities. Investment is in a balanced portfolio of good quality companies structured to produce a higher immediate income than is obtainable from funds concentrating entirely on capital growth.
The investment philosophy focuses on outof-favour or misunderstood stocks which provides manager Alex Breese with the flexibility to invest into classic recovery and growth stocks showing underappreciated earnings potential. Breese also looks to run his winners which leads to a portfolio with a mild value bias. The manager builds the portfolio from the bottom up. This portfolio structure and his investment style means the fund can show significant deviations from the index at a sector level. Performance has been good since he took over management of the fund.
Alex Breese joined Schroders in July 2013, taking control of this fund and its UK domiciled equivalent. He started his career at Neptune in May 2005 where he went on to become the head of UK equities. He was the lead manager of Neptune UK Special Situations from late 2006 to early 2013 where he used a process similar to that currently employed in this fund. He is supported on the fund by manager Philip Matthews and analyst Tom Grady.
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Welcome
5-year Return Q1 Markets Performance Highest & Lowest Returns
Most Bought Funds
Fund Changes Recommended Funds
ADDITIONS First State Global Listed Infrastructure NEW
Login & Buy
Performance Fee
Risk Rating
Morningstar Analyst Rating
5/7
TD Initial Charge
0%
Ongoing Charge
1.70%
0%
Fund Objective
Why Buy This Fund?
Fund Manager
Invests in the shares of companies that are involved in infrastructure around the world. The infrastructure sector includes utilities (e.g. water and electricity), highways and railways, airports services, marine ports and services, and oil and gas storage and transportation. The fund does not invest directly in infrastructure assets. The fund is concentrated; investing in around 40 stocks and typically has a large-cap bias.
The managers seek to deliver attractive long-term returns using a pragmatic bottom-up approach. Their investment process seeks to identify high-quality companies with attractive value characteristics but they are also mindful of macroeconomic and geopolitical risks and their potential impacts on the overall portfolio. Their investment process and desire to preserve investors’ capital means that the portfolio typically has a bias towards the operators of infrastructure assets, primarily in developed countries.
Peter Meany has managed this fund since its launch in October 2007. He is supported by co-manager Andrew Greenup, with whom he built First State’s infrastructure equity business, and a dedicated team of analysts; all are experienced within the infrastructure sector. Meany’s depth of knowledge and expertise in the infrastructure sector, combined with his awareness of broader top-down developments has enabled him to effectively implement the process behind this offering.
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Welcome
5-year Return Q1 Markets Performance Highest & Lowest Returns
Most Bought Funds
Fund Changes Recommended Funds
ADDITIONS First State Global Resources NEW
Risk Rating
Morningstar Analyst Rating
7/7
TD Initial Charge
0%
Login & Buy
Ongoing Charge
Performance Fee
1.73%
0%
Fund Objective
Why Buy This Fund?
Fund Manager
Offers investors exposure to a diversified portfolio of commodity and natural resources related equities. The fund typically has a bias towards larger-cap companies, although the team also invests in smaller companies where the quality of the assets may lead to superior growth that is not reflected in the share price.
The team aims to identify attractive longterm investment opportunities through detailed company research while also being cognisant of the macroeconomic factors and their impact on resources. The emphasis is on high-quality producers whose production costs are low across the sector, in the belief this will lead to superior investment returns with lower risk. The team’s strict adherence to a long-term focus on high-quality producers has been proven through time.
The fund is managed by a well-resourced team, headed by Dr Joanne Warner, with significant expertise in both analysing resources companies and investing in capital markets. The depth of resource and experience of the team is a major feature of this fund, supporting the execution of the clearly-defined investment process.
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Welcome
5-year Return Q1 Markets Performance Highest & Lowest Returns
Most Bought Funds
Fund Changes Recommended Funds
REMOVALS Aberdeen Asset Management has decided to liquidate two funds within its world equity strategies range:
Aberdeen Global Ethical World Equity Fund Aberdeen Global World Equity Dividend Fund due to redemptions from the two largest investors in each of the funds. The resulting small size of the funds means Aberdeen believes it is in the best interests of remaining shareholders to close the funds and return investors’ money. Both managers continue to run other funds at the firm with similar strategies.
Welcome
5-year Return Q1 Markets Performance Highest & Lowest Returns
Most Bought Funds
Fund Changes
Recommended Funds
TD RECOMMENDED FUNDS - SPRING 2016 TD Recommended Specialist Funds
TD Recommended Equity Funds GLOBAL
Growth
Fidelity World
Small Cap Invesco Global Small Cap Equity
US
EUROPE
PROPERTY
Indirect
Henderson Horizon Global Property Equities
SECTOR
Technology
Henderson Horizon Global Technology
Growth
BlackRock Global Funds US Growth
Financial
Fidelity Global Financial Services
Value
Franklin Mutual Beacon
Energy
BlackRock Global Funds World Energy
Blend
Vanguard US 500 Stock Index
Healthcare
BlackRock Global Funds World Health Science
Growth
Parvest Equity Best Selection Europe
Luxury Brands
Pictet Premium Brands
Growth
Jupiter European Growth Class NEW
Infrastructure
First State Global Listed Infrastructure NEW
Income
NN European High Dividend
Blend
Vanguard European Stock Index
Natural Resources
First State Global Resources NEW
Gold
BlackRock Global Funds World Gold
Small Cap Allianz Europe Small Cap Equity
UK
Blend
Schroder UK Equity NEW
ABSOLUTE RETURN
Schroder ISF Emerging Markets Debt Absolute Return
ASIA
Growth
Aberdeen Global Asia Pacific Equity
MULTI ASSET
Fidelity Euro Balanced
Income
Schroder ISF Asian Equity Yield
Growth
Fidelity Emerging Markets
EMERGING MARKETS
TD Recommended Fixed Income Funds EUR
Corporate Bond
Invesco Euro Corporate Bond
High Yield
HSBC GIF Euro High Yield Bond
USD
High Yield
Fidelity US High Yield
GLOBAL
Global Bond
Templeton Global Bond
Global Emerging Markets Bond Templeton Emerging Markets Bond
Welcome
5-year Return Q1 Markets Performance Highest & Lowest Returns
Most Bought Funds
Fund Changes
Recommended Funds
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