|
Analysis: The TD Income Advantage Fund is essentially a balanced fund that invests in income focused mutual funds offered by TD. It provides exposure to a wide range of income producing funds including the TD Canadian Bond Fund, TD Dividend Income Fund, TD Short Term Bond Fund, TD Mortgage Fund and TD High Yield Bond Fund.
The investment objective of the fund is to emphasize income and provide some potential for capital growth. In managing the fund, the manager will use a strategic asset allocation process with an asset mix that will generally be at least 80% invested in fixed income investments, and no more than 20% invested in equity investments. The managers will shift the asset mix of the fund when they feel it prudent, based on their market expectations.
Costs are reasonable, with an MER of 1.66%, which is in the lower half of the category. The fund pays out a monthly distribution, which is currently set at $0.0214 per unit. Based on recent prices, this translates into an annual distribution yield of approximately 2.3%. If you are looking at this fund as a source of regular cash flow, there are likely better options available.
Currently, the fund is 77% bonds, 14% equities and 7% in cash. Performance has been respectable, but an investor would have done better in an all fixed income portfolio. Over the couple of years, the equity component has pushed up the overall volatility while not adding significantly to the return. Further, it was the equity and high yield exposure of the fund which hurt performance in 2008.
Looking ahead, taking into account the outlook for interest rates, we would expect that this fund will likely outperform the TD Canadian Bond Fund over the medium to long term, but with a higher level of volatility .In the short term, with interest rates likely on hold, combined with the expected continued global uncertainty for the next several months, investors will be likely better off with a fund that is more exposed to fixed income. However, once the economy begins to improve and interest rates move higher, this fund should outperform traditional bond funds.