The portfolio is diversified yet focused. It holds just over 100 names,
while the top 10 make up 46% of the portfolio. It’s exposure to the many of
the so-called FAANG stocks (i.e., Facebook, Amazon, Apple, Netflix, and
Google parent Alphabet) has certainly helped propel returns. At the end of
March, its top holding, Amazon.com Inc., alone represented nearly 10% the
portfolio. In fact, tech is the largest sector exposure at 35%, followed by
consumer services at 19%, and healthcare at 17%.
uses a bottom-up, fundamental investment process that looks for companies
with a history of generating free cash flow and a management team that has
demonstrated ability for strong capital allocation. He looks for companies
that can grow their cash flow even after covering necessary capital
expenditures. Also, like other growth-focused managers, he likes companies
that can compound earnings through self-sustained growth.
Puglia is also incredibly patient, with portfolio turnover averaging about
40% for the past five years compared with the 100% for other growth
managers. He has reportedly held U.S. tech and health sciences firm Danaher Corp. (NYSE: DHR)
for more than 24 years.
Top holdings at March 31 included
Amazon.com Inc. (NASDAQ: AMZN),
Microsoft Corp. (NASDAQ: MSFT),
Facebook Inc. (NASDAQ: FB),
Alphabet Inc. (NASDAQ: GOOG), and
Boeing Co. (NYSE: BA).
Granted, valuations within the fund are extremely high, with the weighted
average P/E listed at more than 24 times earnings, compared with 16 for the
index. Other valuation metrics are similarly high. However, forward-looking
growth rates are also higher, making the valuation levels a bit more
palatable. Given the growth tilt, the fund is more volatile than the index
or peer group.
Over the long-term, this is an excellent growth-focused U.S. equity
offering, and I see no reason for that to change. However, I do have some
concerns about the extremely high levels of valuation. While I expect the
fund to run hotter than the market, it is now well ahead of the broader
market, and a correction or period of below-average returns is to be
expected. Unfortunately, we don’t know when that will occur. In the
interim, further gains are possible.
If you have held this for a while, you will definitely want to take some
profits and reduce your exposure.
TD U.S. Blue Chip Equity Fund
TD Asset Management
FundGrade A+ Awards:
2012, 2013, 2015, 2018
Medium to High
Larry Puglia since October 1996
TDB977 (No-load units)
Dave Paterson, CFA, is a money manager and an expert on investment fund
research and due diligence on a variety of investment products.
Notes and Disclaimer
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only and is not intended as personalized investment advice.