Epoch U.S. Large-Cap Value Class

Transcription

1 TD Asset Management Epoch U.S. Large-Cap Value Class (01/19) TD Mutual Funds Corporate Class 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 invest ment 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 tdadvisor@td.com, or by visiting our website at or the SEDAR website at 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 May 31, 2018, the investment fund s fiscal year-end, until. This report should be read in conjunction with the May 31, 2018 Annual Management Report of Fund Performance.

2 n Management Discussion of Fund Performance Results of Operations The Investor Series shares of (the Fund ) returned 0.1% for the six-month period ended ( Reporting Period ), versus 6.0% for the Fund s product benchmark, Russell 1000 Value Total Return Index (C$) ( Russell 1000 Value TR Index (C$) ). Returns for other series of the Fund may vary, largely due to differences in fees and expenses. Refer to the Past Performance section for returns of various series of the Fund. Unlike the benchmark, the Fund s return is quoted after the deduction of fees and expenses. During the Reporting Period, the Fund invested its assets primarily in the O-Series units of Epoch U.S. Large-Cap Value Fund (the UF ). The performance of the UF is similar to that of the Fund except for differences arising from fees and expenses, and purchase and/or redemption activity. This Results of Operations and the following Recent Developments commentaries reflect the views of the UF s Portfolio Adviser for the same period as they directly impact the Fund. Market Update Stocks rose in the U.S. but fell in most other countries as a decline in emerging markets and trade concerns weighed on investor sentiment. In addition, concerns remained about the economic slowdown in China and its implications for global growth. The materials and energy sectors posted the most significant declines, while health care, communications services, and utilities posted the highest returns. U.S. stocks reached all-time highs, weathering trade tensions and benefiting from strong profit growth. Corporate profits increased 16% year-over-year according to the U.S. Department of Commerce, helped by tax cuts and a robust domestic economy. There were, however, notable challenges. Investors appeared to lose confidence in social media stocks as some reported disappointing quarterly results along with cautious outlooks for growth. Information tech - nology stocks generally experienced an increase in volatility in an environment of heightened regulatory scrutiny. Specific companies negatively affected by tariffs also made headlines. The U.S. Federal Reserve Board raised interest rates for the third time in 2018 and signalled more interest rate increases were likely for this year and next. U.S. gross domestic product grew at a 4.2% annualized rate in the second quarter of 2018 amid an increase in hiring, but slowed to 3.5% in the third quarter. The consumer price index rose 2.5% from the previous year, offsetting modest wage gains. Tariffs on US$250 billion worth of Chinese goods went into full effect in September, with observers debating the influence they would have on consumers. Nevertheless, consumer confidence rose to its highest level in nearly two decades. Europe s economic expansion slowed from 2017 s strong pace, with little agreement on whether this was the result of temporary or structural factors. Concerns increased over Germany s coalition government, the path to Brexit remained uncertain and new governments came to power in Spain and Italy. Italy s government sharply increased public spending, risking violation of the European Union s budget rules. The Bank of England raised interest rates and the European Central Bank laid out plans to wind down its bondbuying program by December, but gave assurances that interest rates would remain low at least through the summer of In the Asia-Pacific region, Japanese stocks reached a 27-year intraday high while Prime Minister Shinzo Abe was elected to an unprecedented third term. The Japanese economy shrank slightly during the third quarter of 2018, largely as a result of natural disasters, and concerns remained that any further escalation of the trade disputes between the U.S. and China could moderate any rebound. Japan s wages grew, with cash earnings rising 1.1% year-over-year. The Bank of Japan intervened in bond markets after the yield on 10-year government debt hit an 18-month high. Key Contributors/Detractors While the UF s stock selection was positive in the consumer staples and industrials sectors, this was more than offset by stock selection in other sectors. Specific holdings within the consumer discretionary, financials and information technology sectors, among others, detracted from performance. Eight of 11 sectors posted positive returns over the Reporting Period. Against this backdrop, the UF s greater exposure to the information technology sector, which was up only 1.4%, detracted from performance, as did lesser exposure to consumer staples, which was up 18.6%. Significant contributors to the UF s performance included Microsoft Corp., which performed well on increasing revenue, profits and cash flow. Microsoft was successful in transitioning to the cloud and also moving toward a recurring revenue model with Office 365. In the UF s Portfolio Adviser s view, the cloud opportunity is vast and the company is investing appropriately to capture its fair share of this growth. While the cloud business is moderating profitability currently, the UF s Portfolio Adviser believes margins are improving as the business scales up and should normalize in a few years. The UF s Portfolio Adviser expects these factors should drive strong revenue and free cash flow growth at Microsoft for several years. In the health care sector, shares of Pfizer Inc. increased after the company reported second-quarter revenue and profits that exceeded expectations. The company also raised its forecast for full-year 2018 earnings. Going forward, the UF s Portfolio Adviser s view is that the company s new product pipeline should continue to deliver stronger revenue and free cash flow growth relative to market expectations. In addition, higher cash flow growth should provide additional scope to increase cash returns to investors. In the information technology sector, despite reporting thirdquarter revenue and profits that exceeded consensus expectations, shares of Applied Materials, Inc. continued to generate negative returns on market concerns that semiconductor capital equipment spending has peaked in the current cycle. The UF s Portfolio Adviser expects that the market has overly discounted what should be a temporary slowdown in equipment orders, and expects that growth should resume in The company is in a prime position to benefit from materials innovation that is enabling a new era of 1

3 computing to make possible the Internet of Things (the extension of internet connectivity beyond customary computing devices), big data and artificial intelligence. Over the longer term, the company stated expectations of record spending on wafer fabrication and display equipment and is targeting higher levels of profit and cash flow growth. In the financials sector, shares of Bank OZK continued to come under pressure as a result of investor concerns relative to the company s real estate lending portfolio, which is much larger than a typical midsized bank s. Half of the bank s portfolio is in construction and land development, which is historically the riskiest sector. However, the UF s Portfolio Adviser notes that the bank s management has a strong track record in real estate lending. In the past 13 years, the company has recorded only US$10.4 million in net chargeoffs (debt that is unlikely to be collected on) in its real estate portfolio. The company has not lost money in its 37-year history, including during the financial crisis. Key metrics related to profitability, capital strength and asset quality consistently exceed its peer group. The UF s Portfolio Adviser viewed the recent negative returns as an opportunity to establish a position in the company. Recent Developments Stocks remain supported by a robust global economy, low interest rates, and the broad adoption of technology that reduces the need for capital and labour. The U.S. is also benefiting from the Tax Cuts and Jobs Act ( Act ), which has boosted corporate profits. As the Act s effect wanes and interest rates increase, the UF s Portfolio Adviser expects both economic and profit growth to moderate. Europe may continue to underperform other developed regions, with cash flows and earnings per share growing less quickly, partially reflecting a lower weighting in information technology. Furthermore, the eurozone s reform agenda appears to have stalled, affecting medium-term growth prospects. In Japan, the outlook has improved, with wage growth increasing and stocks appearing attractively priced. The UF s Portfolio Adviser s main concern is the slow pace of improvement regarding companies capital allocation policies. The UF s Portfolio Adviser expects that progress in this area would significantly benefit Japanese stocks, especially given the cash-rich balance sheets of Japan s big corporations. In the UF s Portfolio Adviser s view, emerging markets with large current account deficits and excessive hard currency debts could continue to struggle with the stronger U.S. dollar and a reduction in liquidity. While the economic underpinnings for equities in developed markets remain supportive, several challenges are on the horizon, in the UF s Portfolio Adviser s view. While tariffs have thus far had limited impact, escalating trade tensions could inhibit economic growth, disrupt global supply chains and negatively impact the profit margins of manufacturers. More importantly for stocks, monetary policies are becoming less accommodative, with higher interest rates presenting a challenge. Fast-growing U.S. budget deficits and a wave of corporate bonds maturing could put additional upward pressure on interest rates. As interest rates rise, the UF s Portfolio Adviser expects equity gains could become increasingly dependent on the underlying financial strength of individual companies. The UF s Portfolio Adviser expects the UF s investment approach is well suited to this environment and continues to seek companies that can generate a growing stream of free cash flow and can allocate that cash effectively. 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 and Portfolio Adviser: TDAM, a wholly-owned subsidiary of The Toronto-Dominion Bank ( TD ), is the manager and portfolio adviser of the Fund. The Fund pays TDAM an annual management fee, which may vary for each series of Fund shares, and an annual administration fee of 0.30% with respect to the Investor Series and Advisor Series shares of the Fund. The Fund may also hold series of units of other funds managed by TDAM for which TDAM may be paid a fee. However, there is no duplication of fees paid to TDAM or its affiliates. Distributor: Shares of the Fund are distributed through brokers and dealers including TD Waterhouse Canada Inc. ( TDWCI ), a wholly-owned subsidiary of TD. TDWCI, like other dealers, is paid a trailer commission by TDAM for distributing certain series of shares 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 shareholder records, processes purchase, switch, conversion and redemption orders, issues investor statements and prepares annual tax reporting information on behalf of the Fund. The Fund also maintains bank accounts and overdraft provisions with TD for which TD earns a fee. 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 or at the securityholder s request at no cost by contacting TDAM (see front cover). The Fund and/or the underlying fund in which the Fund invests did not engage in any portfolio transactions requiring IRC approval during the Reporting Period. 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 Share ($) 1 INVESTOR SERIES Nov. 30, 2018 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014 Net Assets, Beginning of Period Increase (Decrease) from Operations: Total Revenue Total Expenses (excluding distributions) (0.30) (0.56) (0.51) (0.50) (0.52) (0.44) Realized Gains (Losses) for the Period Unrealized Gains (Losses) for the Period (0.48) (0.27) 2.42 (1.48) Total Increase (Decrease) from Operations (0.18) Distributions: From Net Investment Income (excluding dividends) From Dividends (0.02) (0.04) From Capital Gains (0.30) (0.43) (1.04) (0.36) (0.05) 0.00 Return of Capital Total Annual Distributions 3 (0.30) (0.43) (1.04) (0.36) (0.07) (0.04) Net Assets, End of Period ADVISOR SERIES Nov. 30, 2018 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014 Net Assets, Beginning of Period Increase (Decrease) from Operations: Total Revenue Total Expenses (excluding distributions) (0.29) (0.55) (0.51) (0.50) (0.53) (0.44) Realized Gains (Losses) for the Period Unrealized Gains (Losses) for the Period (0.56) (0.32) 2.39 (1.46) Total Increase (Decrease) from Operations (0.15) Distributions: From Net Investment Income (excluding dividends) From Dividends (0.02) (0.05) From Capital Gains (0.28) (0.48) (1.04) (0.39) (0.05) 0.00 Return of Capital Total Annual Distributions 3 (0.28) (0.48) (1.04) (0.39) (0.07) (0.05) Net Assets, End of Period Footnotes for the above table(s) can be found at the end of the Net Assets per Share section. 3

5 Net Assets per Share ($) 1 (continued) F-SERIES Nov. 30, 2018 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014 Net Assets, Beginning of Period Increase (Decrease) from Operations: Total Revenue Total Expenses (excluding distributions) (0.12) (0.23) (0.24) (0.24) (0.28) (0.23) Realized Gains (Losses) for the Period Unrealized Gains (Losses) for the Period (0.94) (0.16) 2.59 (1.47) Total Increase (Decrease) from Operations 2 (0.06) Distributions: From Net Investment Income (excluding dividends) From Dividends (0.02) (0.23) (0.13) From Capital Gains (0.60) (0.72) (0.96) (0.37) (0.04) 0.00 Return of Capital Total Annual Distributions 3 (0.60) (0.72) (0.96) (0.39) (0.27) (0.13) 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 June 1, 2014 and accordingly adjusted the immediately preceding financial year ended May 31, 2014 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 share presented in the financial statements may have differed from the net asset value ( NAV ) per share 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 shareholders. 2 Net assets and distributions are based on the actual number of shares outstanding at the relevant time. The increase (decrease) from operations is based on the weighted average number of shares outstanding over the financial periods. These tables are not intended to be a reconciliation of the net assets per share. 3 Distributions were paid in cash or reinvested in additional shares of the Fund, or both. Ratios and Supplemental Data INVESTOR SERIES Nov. 30, 2018 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014 Total Net Asset Value ($000s) 1 19,376 22,492 23,548 23,976 24,485 16,636 Number of Shares Outstanding (000s) ,001 1,146 1, Management Expense Ratio (%) Management Expense Ratio Before Waivers or Absorptions (%) Trading Expense Ratio (%) Portfolio Turnover Rate (%) Net Asset Value per Share ($) ADVISOR SERIES Nov. 30, 2018 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014 Total Net Asset Value ($000s) 1 9,529 12,014 11,085 13,620 14,913 10,246 Number of Shares Outstanding (000s) Management Expense Ratio (%) Management Expense Ratio Before Waivers or Absorptions (%) Trading Expense Ratio (%) Portfolio Turnover Rate (%) Net Asset Value per Share ($) Footnotes for the above table(s) can be found at the end of the Ratios and Supplemental Data section. 4

6 Ratios and Supplemental Data (continued) F-SERIES Nov. 30, 2018 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014 Total Net Asset Value ($000s) 1 14,253 11,041 9,068 7,846 7,159 3,484 Number of Shares Outstanding (000s) Management Expense Ratio (%) Management Expense Ratio Before Waivers or Absorptions (%) Trading Expense Ratio (%) Portfolio Turnover Rate (%) Net Asset Value per Share ($) This information is provided as at and May 31 of the years shown, as applicable. 2 Management expense ratio ( MER ) is based on total expenses (excluding distributions, commissions and other portfolio transaction costs) net of any waivers or absorptions for the stated period, including the Fund s proportionate share of the MER, if any, of the underlying fund(s) in which the Fund has invested in, and is expressed as an annualized percentage of daily average NAV during the period. Any waivers or absorptions may be discontinued at any time by TDAM at its discretion without notice. 3 The trading expense ratio ( TER ) represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average NAV during the stated period. Where a Fund invests in securities of any underlying fund, the TER presented for the Fund includes the portion of TERs, if available, of the underlying fund(s) attributable to this investment. 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, directly or indirectly, 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 of the Fund, TDAM is responsible for the overall business and affairs of the Fund, including activities related to making shares 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 pays TDAM a management fee. Management fees are calculated and accrued as a percentage of the net asset value of each series of shares of the Fund, as of the close of business on each business day for each series and are paid monthly to TDAM. The simplified prospectus discloses a specified annual management fee rate that TDAM can charge for each series of shares of the Fund. Where TDAM chooses to charge a management fee rate below the specified annual management fee rate, the difference represents a waiver of management fees. TDAM may waive all or a portion of the management fees being charged to the Fund, which may be discontinued at any time by TDAM at its discretion without notice to shareholders. The annual management fees and a breakdown of the major services rendered for each series, as a percentage of the management fees paid, are as follows: Waived Annual Dealer Operating (expressed as a %) Mgmt. Fees Compensation Expenses Other Investor Series Advisor Series F-Series Includes management fees paid by the Fund and the proportionate management fees, if any, of the underlying fund(s) managed by TDAM held by the Fund. However, there is no duplication of management fees paid to TDAM or its affiliates if the Fund invests in underlying fund(s) that are managed by TDAM. Investment advisory, marketing services and other. 5

7 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 fiscal years shown. They show in percentage terms how an investment made on June 1 would have increased or decreased by May 31 for each year and for the six-month period ended. 6

8 Summary of Investment Portfolio as at % of Net Asset Value as at % of Net Asset Value ASSET ALLOCATION U.S. Equity Funds Other Net Assets (Liabilities) (0.2) as at % of Net Asset Value TOP 25 INVESTMENTS 1. Epoch U.S. Large-Cap Value Fund, O-Series Total % of Net Asset Value represented by these holdings TOTAL NET ASSET VALUE (000s) $ 43,158 as at % of Net Asset Value INVESTMENT MIX OF UNDERLYING FUND(S) Information Technology 24.7 Financials 18.6 Health Care 17.5 Industrials 11.6 Consumer Discretionary 9.8 Materials 4.8 Consumer Staples 3.9 Energy 3.8 Utilities 2.6 Cash 5.3 Other Net Assets (Liabilities) (2.6) TOP 25 INVESTMENTS OF UNDERLYING FUND(S) 1. Microsoft Corporation Apple Inc Cash UnitedHealth Group Incorporated Alphabet Inc Bank of America Corporation The Boeing Company Centene Corporation Pfizer Inc Costco Wholesale Corporation Occidental Petroleum Corporation Danaher Corporation Ingersoll-Rand PLC Visa Inc Dollar General Corporation Morgan Stanley Applied Materials Inc Universal Health Services Inc DowDuPont Inc AXA Equitable Holdings Inc Boston Scientific Corporation PTC Inc Allergan PLC WEC Energy Group Inc MetLife Inc. 1.7 Total % of Net Asset Value represented by these holdings 64.6 Note: Totals may not add due to rounding to one decimal place of individual figures. The prospectus and other information about the underlying investment funds are available on the internet at and/or as applicable. The prospectus and other information about underlying TD investment funds are also available on the internet at or upon request to TD Asset Management Inc. The Summary of Investment Portfolio may change due to ongoing portfolio transactions of the Fund and underlying fund(s). 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 tdadvisor@td.com 7

9 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 state ments 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 con tribute 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, tech nological 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. Source: London Stock Exchange Group plc and its group undertakings (collectively, the LSE Group ). LSE Group FTSE Russell is a trading name of certain of the LSE Group companies. FTSE, Russell, and FTSE Russell are trade marks of the relevant LSE Group companies and are used by any other LSE Group company under license. TMX is a trade mark of TSX, Inc. and used by the LSE Group under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication. TD Mutual Funds Corporate Class funds are issued by TD Mutual Funds Corporate Class Ltd. TD Mutual Funds, TD Strategic Managed Portfolios, TD Pools, TD Emerald Funds and the classes of TD Mutual Funds Corporate Class Ltd. are managed by TD Asset Management Inc., a wholly-owned subsidiary of The Toronto-Dominion Bank. Epoch Investment Partners, Inc. is a wholly-owned subsidiary of The Toronto-Dominion Bank and an affiliate of TD Asset Management 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. 8