Managed by T. Rowe Price, the
TD U.S. Mid-Cap Growth Fund
has been one of the strongest performers in its category over the past few
years. For the five years ending Sept. 30, the fund delivered an average
annual compounded rate of return of 17.9%, outpacing both the peer group
and the Russell 2000, which returned an average annual 11.1% over the same
period. Shorter term numbers are also solid, with the fund producing a
1-year gain of 20.4%. The fund has garnered the FundGrade A+® Award for the
past three years, and currently has a
FundGrade A Grade
More impressive however is that the managers produced these results with a
level of volatility that is well below the index and the peer group. For
the past five years, the fund’s volatility has been roughly 60% of the
index. The managers have also done a great job protecting capital,
participating in roughly 65% of the downside of the market.
To achieve these numbers, the managers look for high-quality companies that
have the potential to grow earnings or cash flow at a rate of at least 12%
per year. They look for solid business models that offer competitive
advantages, such as a differentiated product or a franchise brand. Such
companies quite often will generate higher margins and higher returns on
invested capital. While this is a growth-focused fund, the managers try to
make sure they don’t overpay for that growth.
The portfolio is well diversified, consisting of between 120 and 140 names,
with the top 10 making up less than 20% of the fund’s assets. Recent top
holdings included aerospace company
Textron Inc. (NYSE: TXT), medical instrument firms
Teleflex Inc. (NYSE: TFX)
Cooper Companies Inc. (NYSE: COO), luxury fashion firm Coach Inc. (NYSE: TPR), and
Microchip Technology Inc. (NASDAQ: MCHP).
Valuations, however, are rich, with valuation ratios well above the broader
market. But this is somewhat offset by the growth rates, which are
substantially higher than the index. Taken all together, this is a
portfolio that has the potential to post above-average numbers in rising
markets. But in volatile markets, it also has the potential to sell off
more than the index.
While the managers have done a great job historically in protecting
capital, the higher-than-normal valuation levels may make that a bigger
challenge down the road. Still, this is an excellent fund, and if you hold
it, and it is in line with your investment objectives and risk tolerance,
there is no reason to sell it. But you may want to take some profits and
get some money off the table.
At current levels, I’d be reluctant to take on a new position in the fund.
If we do see a selloff, it may be a good time to start a new position.
TD U.S. Mid-Cap Growth Fund
TD Asset Management
U.S. Small/Mid Cap Equity
FundGrade A+ Awards:
2015, 2016, 2017
Mid Cap Growth
Brian Berghuis since Jan. 1994; John Wakeman since July 2006
TDB312 (Front-end load)
Dave Paterson, CFA, is the Director of Research, Investment Funds for
D.A. Paterson & Associates Inc., a consulting firm specializing in providing research and due
diligence on a variety of investment products. He is also the publisher
Dave Paterson’s Top Funds Report,
offering regular commentary and in-depth analysis of Canada’s top
investment funds. He uses a unique analytical approach to identify
funds with strong, risk-adjusted returns, and regularly publishes his
insights and analyses in Fund Library.
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only and is not intended as personalized investment advice.