| Fund Company | TD Mutual Funds |
| Fund Type | Canadian Short Term Fixed Income |
| Rating | $$$ |
| Style | N/A |
| Risk Level | Low |
| Load Status | No Load / Optional |
| RRSP/RRIF Suitability | Excellent |
| TFSA Suitability | Excellent |
| Manager | David McCulla since January 2004 Olga Bylaard since January 2009 |
| MER | 1.82% |
| Code | TDB 621 – No Load Units TDB 2010 – Front End Units TDB 2011 – DSC Units |
| Minimum Investment | $100 |
Analysis: In many cases, simple is good. With the TD Mortgage Fund, that is definitely the case. It is a very simple fund, investing in a portfolio of high quality Canadian residential mortgages that it buys from TD Bank. It can also invest in uninsured conventional mortgages, National Housing Act insured mortgages and mortgage backed securities.
The goal of the fund is to provide investors with a steady stream of income. To do this, it pays out a variable monthly distribution, which in the past year has ranged between $0.095 and $0.181 per unit. This works out to an annualized yield of about 2.6%.
The portfolio is very well diversified, holding nearly 12,000 individual securities. 92% is invested in mortgages, 5% in bonds with the balance in cash. It is very high quality, with more than 95% of the fund being rated AAA. It is also very conservatively positioned with a duration that is lower than the index, while having a yield that is higher. This will help to better protect investors’ assets when interest rates begin to move higher.
Given the conservative nature of this fund, we view it as a pretty good parking spot for shorter term funds. For example, it has a level of volatility that is half that of a traditional bond fund and it has never lost money over a 12 month period. It provides a level of return that is higher than what you could earn in a money market fund or high interest savings account, and is comparable to a GIC. That said, unlike a GIC, this fund does have the potential to lose money in the short term.
It also has low correlation to the major asset classes, including bonds, so it will be a good in a portfolio as part of your fixed income weighting.
Performance has been middle of the pack for the Canadian Short Term Fixed Income category, but volatility is in the lower half of the category. While we like this fund for most investors, those with more than $5,000 to invest in short term instruments may want to consider the PH&N Short Term Bond & Mortgage Fund instead as it offers a slightly better risk reward profile and a lower cost.