Epoch U.S. Blue Chip Equity Fund

Transcription

1 Epoch U.S. Blue Chip Equity Fund (08/17) TD Mutual Funds for the period ended This Interim Management Report of Fund Performance contains financial highlights, but does not contain either the complete interim financial report or annual financial statements of the investment fund. You can get a copy of the interim financial report or annual financial statements at your request, at no cost, by calling , by writing to us at TD Asset Management Inc., P.O. Box 100, 66 Wellington Street West, TD Bank Tower, Toronto-Dominion Centre, Toronto, Ontario, M5K 1G8, by to td.mutualfunds@td.com, or by visiting our website at tdassetmanagement.com or the SEDAR website at sedar.com Securityholders may also contact us or visit our website to get a copy of the investment fund s proxy voting policies and procedures, proxy voting disclosure record, or quarterly portfolio disclosure at no cost. This Interim Management Report of Fund Performance represents management s view of the significant factors and developments affecting the investment fund s performance and outlook since December 31, 2016, the investment fund s fiscal year-end, until. This report should be read in conjunction with the 2016 Annual Management Report of Fund Performance.

2 nepoch U.S. Blue Chip Equity Fund Management Discussion of Fund Performance Results of Operations The D-Series units of the Epoch U.S. Blue Chip Equity Fund ( Fund ) returned 6.6 percent for the six-month period ended ( Reporting Period ), versus 5.4 percent for the Fund s product benchmark the S&P 100 Total Return Index (C$). Returns for other series of the Fund may vary, largely due to differences in fees and expenses. Unlike the benchmark, the Fund s return is quoted after the deduction of fees and expenses. Market Update Stocks rose over the Reporting Period, helped by an improved outlook for earnings along with policy expectations for the U.S. administration (primarily tax cuts, deregulation and infrastructure spending). The broad indices all reached record highs in June while growth indices beat value indices. The information technology, consumer discretionary and health care sectors had the best results, aided by corporate profits and, in the case of health care, a lack of negative surprises on the policy front. Financials rose late in June after the U.S. Federal Reserve Board ( Fed ) released positive results from its most recent round of stress tests, allowing the major banks to increase planned payouts to shareholders. The worst returns came from the energy sector, which declined on weak oil prices, and the telecommunication services sector, which struggled with ongoing price competition. The real estate sector also declined as a result of rising interest rate concerns. Economic data was positive early in the Reporting Period and then showed signs of hitting a soft period. The Fed raised interest rates twice, despite a series of weak inflation figures. The Fed also spelled out in greater detail its plan to start slowly shrinking its US$4.5 trillion portfolio of bonds and other assets in Key Contributors/Detractors The Fund s significant exposure to information technology stocks, along with stock selection within that sector, helped drive absolute and relative returns. Other major factors boosting relative returns included a limited exposure to the energy sector and lack of exposure to the telecommunication services sector, as these two sectors experienced sharp declines during the Reporting Period. Stock selection in the health care sector also boosted results. On the negative side, stock selection in the consumer discretionary and energy sectors hindered returns, as did the Fund s limited exposure to the consumer discretionary sector. Among the top individual contributors to absolute returns were information technology companies, including Apple Inc., Oracle Corp., Applied Materials Inc. and Visa Inc. Apple Inc. continued to drive software and services innovation that enabled the company to capture premium pricing on its hardware. Applied Materials Inc. experienced an acceleration of equipment orders. Oracle Corp. s share price rose after the company reported that software-as-aservice ( SaaS ) revenue rose by 67 percent to US$964 million on a full-year basis. The company s cloud-based business now has good momentum. The Portfolio Adviser opted to sell the position based on price appreciation. The largest individual detractors included energy companies Schlumberger N.V. and Occidental Petroleum Corp. Other detractors included American International Group Inc. and General Electric Co. Recent Developments In the Portfolio Adviser s view, the prospects for the financials sector in general, and the Fund s holdings in particular, remain attractive. After a good run in 2016, investors have become concerned over the absence of a meaningful steepening in the yield curve (the yields on bonds with different maturities). Historically, a steeper yield curve has been perceived as beneficial for bank and insurance companies interest rate margins and profits. However, the absence of a change in the yield curve does not necessarily preclude additional upside for the banks and insurance companies held in the Fund. In the Portfolio Adviser s opinion, the cost of deposits for most companies is still close to zero. With the Fed s interest rates at 1.00 to 1.25 percent, lenders are earning additional interest income. For years, banks and insurance companies have been subsidizing money market products on behalf of their customers, essentially an expense on the income statement. Today, higher money market security yields are serving to reduce this subsidy. Finally, the Fed s recent stress test for capital adequacy confirmed that most banks are well capitalized. The Portfolio Adviser expects these companies should soon be able to return additional excess capital to their shareholders in the form of dividend payments and share repurchases, an event that could be positive for stock prices. Overall, while investors appear to be concerned over the absence of an anticipated steepening in the yield curve, the Portfolio Adviser anticipates that there are several positive factors in place that could propel financials sector stock prices higher. Similar to the financials sector, the stock prices of many of the information technology companies held in the Fund have paused after appreciating significantly over the last 12 months. The Portfolio Adviser expects that the recent rise in the share prices of these companies was due more to robust earnings or cash flow growth than an expansion in the valuation multiple of the sector or the companies. A pause after such a good run seems routine, with some investors electing to take profits in their positions. The Portfolio Adviser expects that the information technology companies held within the Fund should continue to register gains in revenue and cash flow growth. Assuming a constant valuation multiple, the share prices of these companies should move higher over time. 1

3 The Portfolio Adviser remains positive on the outlook for the U.S. economy over the intermediate term. The Portfolio Adviser expects continued gains in employment, wages and housing, and their related impact on spending, which should be beneficial for U.S. companies. As a result, the Portfolio Adviser remains comfortable with the Fund owning economically sensitive companies, businesses that should benefit on a relative basis in a positive economic environment. The Portfolio Adviser remains optimistic about the prospects for the Fund s financials and information technology holdings. While gains have slowed in these sectors, the Portfolio Adviser anticipates that there are factors in place that should result in additional price appreciation. Buying and Selling Securities: TDAM has established an independent review committee ( IRC ) which acts as an impartial and independent committee to review and provide recommendations or, if appropriate, approvals respecting any conflict of interest matters referred to it by TDAM. The IRC prepares, at least annually, a report of its activities for securityholders of the Fund. The report is available on the TDAM website at tdassetmanagement.com or at the securityholder s request at no cost by contacting TDAM (see front cover). The Fund did not engage in any portfolio transactions requiring IRC approval during the Reporting Period. Related Party Transactions Affiliates of TD Asset Management Inc. ( TDAM ) may earn fees and spreads in connection with various services provided to, or transactions with, the Fund, such as in connection with banking, custody, brokerage and derivatives transactions. Manager, Trustee and Portfolio Adviser: TDAM, a wholly-owned subsidiary of The Toronto-Dominion Bank ( TD ), is the manager, trustee and portfolio adviser of the Fund. TDAM has appointed Epoch Investment Partners, Inc., an affiliate of TDAM, as portfolio adviser for the Fund in addition to TDAM. The Fund pays TDAM an annual management fee, which may vary for each series of Fund units, and an annual administration fee of 0.30 percent with respect to the D-Series units of the Fund. Distributor: Units of the Fund are distributed through brokers and dealers including TD Waterhouse Canada Inc. ( TDW ), a wholly-owned subsidiary of TD. TDW, like other dealers, is paid a trailer commission by TDAM for distributing certain series of units of the Fund. Trailer commissions are paid by TDAM out of the management fees it receives from the Fund and are based on the average value of assets held by each dealer. Registrar and Transfer Agent: TD is the registrar and transfer agent of the Fund, and as such maintains all unitholder records, processes purchase, switch, conversion and redemption orders, issues investor statements and prepares annual tax reporting information on behalf of the Fund. TD earns a foreign exchange spread when unitholders switch between units of funds denominated in different currencies. The Fund also maintains bank accounts and overdraft provisions with TD for which TD earns a fee. Administration and Securityholder Services: TDW, in addition to acting as a dealer, also provides administration and securityholder services to the Private Series units of the Fund for which such costs are reflected in the operating expenses for the Private Series units of the Fund. These services include securityholder account maintenance and reporting. 2

4 Financial Highlights The following tables show selected key financial information about the Fund and are intended to help you understand the Fund s financial performance for the six-month period ended and the past five fiscal years, as applicable. Net Assets per Unit ($) 1 D-SERIES * Net Assets, Beginning of Period N/A N/A N/A N/A Increase (Decrease) from Operations: Total Revenue N/A N/A N/A N/A Total Expenses (excluding distributions) (0.11) (0.14) N/A N/A N/A N/A Realized Gains (Losses) for the Period N/A N/A N/A N/A Unrealized Gains (Losses) for the Period (0.17) 0.69 N/A N/A N/A N/A Total Increase (Decrease) from Operations N/A N/A N/A N/A Distributions: From Net Investment Income (excluding dividends) (0.02) N/A N/A N/A N/A From Dividends 0.00 N/A N/A N/A N/A From Capital Gains 0.00 N/A N/A N/A N/A Return of Capital 0.00 N/A N/A N/A N/A Total Annual Distributions 3 (0.06) (0.02) N/A N/A N/A N/A Net Assets, End of Period N/A N/A N/A N/A PRIVATE SERIES Net Assets, Beginning of Period Increase (Decrease) from Operations: Total Revenue Total Expenses (excluding distributions) (0.03) (0.06) (0.07) (0.06) (0.06) (0.01) Realized Gains (Losses) for the Period Unrealized Gains (Losses) for the Period (0.19) (1.27) Total Increase (Decrease) from Operations Distributions: From Net Investment Income (excluding dividends) (0.32) (0.33) (0.31) (0.32) (0.21) From Dividends From Capital Gains 0.00 (0.78) Return of Capital Total Annual Distributions 3 (0.18) (0.32) (1.11) (0.31) (0.32) (0.21) Net Assets, End of Period This information is derived from the Fund s interim and audited annual financial statements. The Fund adopted International Financial Reporting Standards ( IFRS ) on January 1, 2014 and accordingly adjusted the immediately preceding financial year ended December 31, 2013 to reflect the amounts in accordance with IFRS. Previously, financial statements were prepared as per Canadian generally accepted accounting principles ( GAAP ) under which the Fund measured fair values of its investments based on bid prices for long positions and ask prices for short positions. As such, the net assets per unit presented in the financial statements may have differed from the net asset value ( NAV ) per unit calculated for fund pricing purposes. Under IFRS, the Fund measures fair values of its investments based on close market prices, where the close market price falls within the bid-ask spread or based on quotations from recognized dealers. As such, the Fund s accounting policies for measuring the fair value of investments in the financial statements are substantively consistent with those used in measuring the NAV for transactions with unitholders. All figures presented prior to January 1, 2013 were prepared in accordance with Canadian GAAP. 2 Net assets and distributions are based on the actual number of units outstanding at the relevant time. The increase (decrease) from operations presented in the Net Assets per Unit tables starting from fiscal year 2013 are based on the weighted average number of units outstanding over the financial periods. The increase (decrease) from operations prior to 2013 were calculated by aggregating each valuation day s increase (decrease) from operations divided by the number of units outstanding on that date. These tables are not intended to be a reconciliation of the net assets per unit. 3 Distributions were paid in cash or reinvested in additional units of the Fund, or both. * Data reported represents results from the commencement of operations to December 31 of the year indicated. Please refer to the Year-by-year returns charts in the Past Performance section for commencement date. Initial offering price. 3

5 Ratios and Supplemental Data D-SERIES Total Net Asset Value ($000s) N/A N/A N/A N/A Number of Units Outstanding (000s) N/A N/A N/A N/A Management Expense Ratio (%) N/A N/A N/A N/A Management Expense Ratio Before Waivers or Absorptions (%) N/A N/A N/A N/A Trading Expense Ratio (%) N/A N/A N/A N/A Portfolio Turnover Rate (%) N/A N/A N/A N/A Net Asset Value per Unit ($) N/A N/A N/A N/A PRIVATE SERIES Total Net Asset Value ($000s) 1 1,624,981 1,491,611 1,548,941 1,475,844 1,185, ,464 Number of Units Outstanding (000s) 1 78,826 77,009 81,153 86,323 84,048 60,069 Management Expense Ratio (%) Management Expense Ratio Before Waivers or Absorptions (%) Trading Expense Ratio (%) Portfolio Turnover Rate (%) Net Asset Value per Unit ($) This information is provided as at and December 31 of the past five fiscal years, as applicable. 2 Management expense ratio is based on total expenses (excluding distributions, commissions and other portfolio transaction costs) for the stated period and is expressed as an annualized percentage of daily average NAV during the period. It excludes any operating expenses waived or absorbed by TDAM, which may be discontinued at any time by TDAM at its discretion without notice. 3 The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average NAV during the stated period. 4 The Fund s portfolio turnover rate ( PTR ) indicates how actively the Fund s portfolio adviser manages its investments. A PTR of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the stated period. The higher a fund s PTR, the greater the trading costs payable by the fund in the period, and the greater the chance of an investor receiving taxable capital gains in the fiscal year. There is not necessarily a relationship between a high turnover rate and the performance of a fund. Management Fees As manager and trustee of the Fund, TDAM is responsible for the overall business and affairs of the Fund including activities related to making units of the Fund available to investors, and providing, or arranging for the provision of, investment advisory services and marketing services to the Fund. In consideration for the provision of such services, each series of the Fund, other than Private Series units, pays TDAM a management fee. Management fees are calculated and accrued as a percentage of the net asset value of each series of units of the Fund, as of the close of business on each business day for each series and are paid monthly to TDAM. The maximum management fee is the maximum fee that can be charged to each series of units of the Fund according to the simplified prospectus. TDAM may charge management fees that are less than the management fees TDAM is otherwise entitled to charge each series of units of the Fund. The actual management fee is the annualized fee that was charged for the Reporting Period. TDAM may charge the maximum management fee without notice to unitholders. Management fees for the Reporting Period, annualized, and a breakdown of the major services rendered for each series, as a percentage of the actual management fees, are as follows: Maximum Actual Dealer Waived (expressed as a %) Mgmt. Fee Mgmt. Fee Compensation Expenses Other D-Series Private Series N/A N/A N/A There are no management fees paid by the Fund in respect of Private Series units of the Fund. Unitholders in the Private Series pay a negotiated fee directly to TDAM, their dealer or TD Waterhouse Private Investment Counsel Inc. Investment advisory, trustee, marketing services and other. 4

6 Past Performance The following charts show how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. These returns include the reinvestment of all distributions and would be lower if an investor did not reinvest distributions. They do not include deduction of sales, switch, redemption, or other optional charges (which dealers may charge) or income taxes payable, and these returns would be lower if they did. The Fund s past performance does not necessarily indicate how it will perform in the future. Year-by-year returns The bar charts show how the Fund s performance has varied from year to year for each of the years shown. They show in percentage terms how an investment made on January 1 would have increased or decreased by December 31 for each year and for the six-month period ended. 5

7 Summary of Investment Portfolio as at % of Net Asset Value as at % of Net Asset Value ASSET ALLOCATION U.S. Equities 95.4 International Equities 2.6 Cash 2.7 Other Net Assets (Liabilities) (0.7) PORTFOLIO DETAILS Information Technology 25.1 Financials 19.6 Health Care 15.6 Consumer Staples 9.7 Consumer Discretionary 9.7 Industrials 9.5 Energy 3.4 Materials 2.9 Utilities 2.5 Cash 2.7 Other Net Assets (Liabilities) (0.7) TOTAL NET ASSET VALUE (000s) $ 1,625,330 TOP 25 INVESTMENTS 1. Apple Inc Microsoft Corporation Bank of America Corporation Comcast Corporation Alphabet Inc UnitedHealth Group Incorporated PepsiCo Inc AbbVie Inc Applied Materials Inc The Procter & Gamble Company Visa Inc Morgan Stanley McKesson Corporation E.I. du Pont de Nemours and Company The Home Depot Inc Allergan PLC American International Group Inc Cash General Electric Company Ingersoll-Rand PLC The Coca-Cola Company Chubb Limited BlackRock Inc Duke Energy Corporation MetLife Inc. 2.5 Total % of Net Asset Value represented by these holdings 86.4 Note: Totals may not add due to rounding to one decimal place of individual figures. The Summary of Investment Portfolio may change due to ongoing portfolio transactions of the Fund. Updates are available quarterly. You may obtain the most current quarterly information by contacting TD Mutual Funds at , by writing to us at TD Asset Management Inc., P.O. Box 100, 66 Wellington Street West, TD Bank Tower, Toronto, Ontario, M5K 1G8, or by to td.mutualfunds@td.com 6

8 Caution regarding forward-looking statements Certain portions of this report, including, but not limited to, Results of Operations and Recent Developments, may contain forward-looking statements including, but not limited to, statements about the Fund, its strategy, risks, expected performance and condition. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as expects, anticipates, intends, plans, believes, estimates and similar forward-looking expressions or negative versions thereof. In addition, any statement that may be made concerning future performance, strategies or prospects, and possible future Fund action, is also a forward-looking statement. Forward-looking statements are based on current expectations and projections about future general economic, political and relevant market factors, such as interest rates, foreign exchange rates, equity and capital markets, and the general business environment, in each case assuming no changes to applicable tax or other laws or government regulation. Expectations and projections about future events are inherently subject to, among other things, risks and uncertainties, some of which may be unforeseeable. Accordingly, assumptions concerning future economic and other factors may prove to be incorrect at a future date. Forward-looking statements are not guarantees of future performance, and actual events could differ materially from those expressed or implied in any forward-looking statements made by the Fund. Any number of important factors could contribute to these digressions, including, but not limited to, general economic, political and relevant market factors in North America and internationally, interest and foreign exchange rates, equity and capital markets, business competition, technological change, changes in government relations, unexpected judicial or regulatory proceedings and catastrophic events. The above mentioned list of important factors is not exhaustive. You are encouraged to consider these and other factors carefully before making any investment decisions and you are urged to avoid placing any undue reliance on forward-looking statements. Further, there is no specific intention of updating any forward-looking statements contained herein whether as a result of new information, future events or otherwise. For Funds with references to FTSE TMX Canada indices: FTSE TMX Global Debt Capital Markets Inc 2017 FTSE is a trade mark of FTSE International Ltd and is used under licence. TMX is a trade mark of TSX Inc. and is used under licence. All rights in the FTSE TMX Global Debt Capital Markets Inc s indices and/or FTSE TMX Global Debt Capital Markets Inc s ratings vest in FTSE TMX Global Debt Capital Markets Inc and/or its licensors. Neither FTSE TMX Global Debt Capital Markets Inc nor its licensors accept any liability for any errors or omissions in such indices and/or ratings or underlying data. No further distribution of FTSE TMX Global Debt Capital Markets Inc s data is permitted without FTSE TMX Global Debt Capital Markets Inc s express written consent. TD Mutual Funds, TD Pools and the TD Managed Assets Program portfolios are managed by TD Asset Management Inc., a wholly-owned subsidiary of The Toronto-Dominion Bank and are available through authorized dealers. Epoch Investment Partners, Inc. ( Epoch ) is a wholly-owned subsidiary of The Toronto-Dominion Bank and an affiliate of TD Asset Management. TD Asset Management operates in Canada through TD Asset Management Inc. and in the U.S. through TDAM USA Inc. All trademarks are the property of their respective owners. The TD logo and other trade-marks are the property of The Toronto-Dominion Bank. 7