Moderated by: Kim Parlee, VP , TD Wealth 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
Agenda • A New Approach to Portfolio Construction • TDAM Fixed Income Capabilities • Fixed Income ETF Solutions TD Asset Management | For Advisor Use Only 2
A New Approach to Portfolio Construction
A New Approach To Help Meet Clients Unique Needs 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 meet client's unique needs TD Asset Management | For Advisor Use Only 4
The Journey to the Destination Matters TD Asset Management | For Advisor Use Only 5
Factor Exposures Should Take a Holistic View Credit Rates • Many manage fixed income investments along a spectrum, failing to take a holistic Fixed Income Risk Factors view Interest Rates • Reality is much more complicated, and ignoring embedded risks has Liquidity Credit consequences for portfolio construction • Many of the same risk factors present in fixed income are also present in equities Purchasing Currency Power TD Asset Management | For Advisor Use Only 6
What is a Factor Exposure? Nutrients of Asset Classes = Factor Exposure 100% 100% 90% 90% 80% 80% Contribution to Risk (%) 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% Fixed Income Corporate Bond ETFs Corporate Bonds Fixed Income Term Premium Equity Mitigating Outside & Inside Risks TD Asset Management | For Advisor Use Only 7
Moving to a Factor Based Approach How Does a Traditional Portfolio Look Under the Factor Microscope? Equity 5% 6% MSCI World 25% Risk-Free Short-Term Bond 25% 54% Currency Investment Grade 60% Universe 10% Interest Rate 15% High Yield Bond Factor TD Asset Management | For Advisor Use Only 8
Moving to a Factor Based Approach How Does a Traditional Portfolio Look Under the Factor Microscope? Traditional approach does not line up perfectly in terms of factors. Equity 5% 6% MSCI World 25% Risk-Free Short-Term Bond 25% 54% Currency Investment Grade 60% Universe 10% Interest Rate 15% High Yield Bond Factor 40% Bonds 15% Bonds TD Asset Management | For Advisor Use Only 9
Is the Role of Fixed Income Evolving? 3yr Rolling Fixed Income Returns vs Yield 20% Return from Yield 15% Return from Capital Gains Yield 10% 5% 0% -5% TD Asset Management | For Advisor Use Only 10
A Factor Optimized Fixed Income Portfolio • 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 TDAM Offers the Ingredients and a Packaged Solution TD Asset Management | For Advisor Use Only 11
TD Asset Management Fixed Income Capabilities
Fixed Income Investment Management Experience Independence Scalability Portf tfolio olio Managemen agement t focused on - maximizing yield, minimizing risk - capitalizing on opportunities, avoiding threats Credit it Analy lysts sts publish independent ratings and proprietary research Trading ing Desk implement investment decisions, ensuring best execution TD Asset Management | For Advisor Use Only 13
Deep and Experienced Fixed Income Team Fixed Income Assets Under Management C$157.8 B 1 20+ Portfolio Managers 11% 8% Canadian Bonds 16+ Credit Research Analysts Global Bonds 11% Short Term & Money Market 70% Synthetics 6+ Client Portfolio Managers • • • TD Asset Management | For Advisor Use Only 14
The Investment Opportunity Set Seeking to add value across sectors Domestic Government High Yield & Domestic Leveraged Corporate Global Loans Tactical Allocation Macroeconomic Decision Analysis Fixed Inflation Canadian Core • Fiscal/Political Environment Private Debt • Credit Quality Linked Universe Income • Diffusion/Surprise Indices • Relative Valuation Universe • Currency Analysis • Breakeven inflation rates Global Mortgage and Government Real Estate Global Emerging Corporate Markets TD Asset Management | For Advisor Use Only 15
Proprietary Credit Analysis Independent Research, Original Thought TDAM Internal Research Metrics TDAM internal Internally Fundamental TDAM Credit credit rating developed metric Stability Rating implying probability displaying relative Score of default stability of an A+ 1/10 issuer Analysts review TDAM Maintains relative pricing and an ESG database Relative Value ESG Score Recommendation compare to implied and an internal 4/10 fundamental value ESG scale & score Pick or Pan TD Asset Management | For Advisor Use Only 16
Cross Functional Collaboration Credit Research & Portfolio Management Industry analysis Management team Event risk Independent credit Asset quality rating Asset performance Credit enhancement Structural features Credit Portfolio Research Management Stability of sector and entity Credit volatility and Volatility of financials Relative risk valuation risk score Forward looking adjustments TD Asset Management | For Advisor Use Only 17
Fixed Income ETF Solutions
ETF Factor Exposure - Cheat Sheets Interest Equity Currency Illiquidity Alpha Rate ✓ ✓ TDB TD Canadian Aggregate Bond Index ETF ✓ ✓ TCSB TD Select Short Term Corporate Bond Ladder ETF ✓ TCLB TD Canadian Long Term Federal Bond ETF Canada/U.S. Fixed Income ✓ ✓ ✓ ✓ 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 International/Global ✓ ✓ ✓ ✓ TGFI TD Active Global Income ETF Fixed Income ✓ ✓ TPRF TD Active Preferred Share ETF Active Income ✓ ✓ ✓ ✓ TPAY TD Income Builder ETF Not all Fixed Income ETFs offer the same Exposures TD Asset Management | For Advisor Use Only 19
The Evolution of Evaluating Risks Standard Measures No Longer Suffice Inflation Linked Risks Not Captured Private Interest Rate Risk Debt • Liquidity • Currency Sovereign Corporate High Yield • Purchasing Power & Leveraged Mortgage Loans & Real Money Estate Market Credit Risk TD Asset Management | For Advisor Use Only 20
An All-in-One Fixed Income ETF TD Income Builder ETF (TPAY) - Summary Improved Exceptional Simplicity Outcomes Value An all all-in in-one one fixed ed incom ome solution tion, focused on providing broad Professionally - diversification Managed Fixed - income - stability Income ETFs Activ tive & & Tactic tical al Manage agement ment, with underlying active ingredients Allocated by an Experienced Asset Flexibil ibilit ity to proactively adjust positioning for evolving market Allocation team environment TD Asset Management | For Advisor Use Only 21
Initial Portfolio Construction TD Canadian Aggregate Bond Index ETF (TDB) Core re Canadian Bond Unive verse rse Exposu sure. re. Stab tability, ty, dive versi rsifi ficati tion and yield yield • TD Select Short Term Corporate Bond Ladder ETF (TCSB) Yield enhanceme ment, t, low w durati ration 30% • TD Active Global Income ETF (TGFI) 45% Yield enhanceme ment, t, cred redit t ma manageme ment, t, global dive versi rsifi ficati tion • TD U.S. Long Term Treasury Bond ETF (TULB) Durati ration ma manageme ment, t, defen fensive sive, USD exposu sure re • 10% TD Canadian Long Term Federal Bond ETF (TCLB) Durati ration ma manageme ment • 5% 5% 5% TD Active U.S. High Yield ETF (TUHY) Yield enhanceme ment, t, cred redit t ma manageme ment • TD Asset Management | For Advisor Use Only 22
Benefits of an All-in-One Solution We understand the dual role of fixed income and aim to be a stron ong diversif ifier er with equities especially in bear-markets Managed for Tomorrow Acti Ac tive e Managemen ement t + Tactic ical l Asset et Allocati tion on = 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 Gives more time to the advisor to manage their client relationships TD Asset Management | For Advisor Use Only 23
Thank You! Questions?
Disclosure TD Asset Management | For Advisor Use Only 25
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