Best bets from TD

TD Asset Management offers a wide range of mutual funds, some of which are well worth a close look. I have just completed a complete review of the family and here are four of my top choices.

TD Canadian Bond Fund. This is a very impressive bond fund. Since 1994 it has beaten both the average of its peer group and the Scotia Capital Markets Universe Bond Index the majority of the time. To achieve this result, the fund manager has overweighed the portfolio toward high-quality corporate bonds (about two-thirds of the assets), with the remainder in various government bonds. The fund is conservatively managed as far as interest-rate risk goes. Gain for the year to January 31 was 6.8 per cent, which was nicely above the 5.2 per cent average for the Canadian Bond category. Longer term results are equally impressive. This fund is a solid performer. Put it in your RRSP. Rating: $$$$ (out of four).

TD Short Term Bond Fund. This fund will fit very nicely in your RRSP and should provide a better return than you’d get from a money market fund or a GIC. The fund invests in short- to medium-term (up to three years) high-quality securitiesAbout 40 per cent of the portfolio is in government issues with the rest in good-quality corporate bonds such as CIBC, Bank of Nova Scotia, and Wells Fargo Financial. The performance record is above average for the Short-Term Bond category, with a one-year gain of just over 4 per cent in 2004 and an average annual return of 5 per cent over the past three years (to January 31).

The fund makes monthly distributions which vary in amount. Over the past year, the total payout was about 36c per unit. This makes the fund a good choice for RRIF investors as well. The minimum initial investment is $1,000 for non-registered accounts but only $100 for an RRSP. Risk is about average for a fund of this type but very low compared to bond funds generally. The fund has not had a losing year since at least 1998. Rating: $$$$.

TD Dividend Income Fund. This fund is geared for investors seeking preferential after-tax monthly income and the opportunity for moderate capital gains. Since inception, the fund has generally been an above-average performer compared with its peer group, although the 12-month gain of 9.9 per cent to Jan. 31 was below the category average. Three, five, and ten year results all surpass those of the peer group, however. The portfolio mix shows 55 per cent of the assets in common stocks in dividend-paying sectors like financial services, utilities, and pipelines. Another 15 per cent is in trust units, 10 per cent in preferred shares, and 16 per cent in bonds.

This gives the fund good tax-advantaged income, but also makes it more sensitive to rising interest rates. The bond side consists of government and corporate bonds and is of generally high credit quality. The safety rating is much better than average for a fund of this type. The overall defensiveness of the fund makes it a good vehicle for long-term conservative investors and the monthly distributions provide steady cash flow. It’s worth considering for a RRIF, although any tax advantages will be lost inside a registered plan. Rating: $$$$.

TD Dividend Growth Fund. The goal here is to provide investors with superior after-tax income and steady growth. It invests primarily in large-cap, high-yielding common stocks and, to a lesser degree, in trust units (about 19 per cent of assets at the start of ’05). The portfolio holds a small core group of around 35 to 40 stocks, mainly in the traditional dividend-paying sectors of financial services, utilities, and pipelines. As for risk, this fund is a tad more aggressive than the average Canadian dividend fund because of its significant bias toward common stocks. That makes it more risky than the companion TD Dividend Income Fund.

However, compared to a benchmark index like the S&P/TSX 60, the risk is still relatively low. In the 12 months to Jan. 31 the fund gained 12.1 per cent. That was about average for its peer group but longer-term numbers are well above the average over three, five, and 10 years. Overall, this is an above-average fund for capital appreciation, but tax-advantaged cash flow is not its strong suit (distributions are only paid quarterly and are quite small). The fund is therefore not recommended for those who need regular income. It is better suited for investors looking for a conservatively managed blue chip stock fund. Rating: $$$$.

Check with a financial advisor to see if the funds are suitable for your needs before investing.