| Fund Company | TD Asset Management Inc. |
| Fund Type | Healthcare Equity |
| Rating | A |
| Style | Growth |
| Risk Level | Medium High |
| Load Status | No Load / Optional |
| RRSP/RRIF Suitability | Fair |
| TFSA Suitability | Fair |
| Manager | Kris Jenner since January 2000 |
| MER | 2.83% |
| Code | TDB 976 – No Load Units TDB 320 – Front End Units TDB 350 – DSC Units |
| Minimum Investment | $500 |
Analysis: Since mid 2010 healthcare stocks have been on quite a tear, with the Dow Jones Global Health Care Index gaining nearly 20% a year for the past three years. Part of the reason for this has been that the sector has a number of stable businesses that generate strong free cash flows, pay above average dividends, and have an earnings stream that is not tied to the global economy. Also, healthcare is generally considered a more defensive sector, and given many investors’ preference to play defense, the sector has become quite popular.
All healthcare funds are not created equally. The TD Health Sciences Fund has been one of my favourites. It invests in companies that are involved in the research, development, production, or distribution of products or services related to health care, medicine, or the life sciences. To qualify for selection, companies must derive at least 50% of their assets, revenues, or operating profits from those activities. The manager tends to focus in the U.S. where nearly 85% of the fund is invested.
Volatility has been in line with the category average. Performance has been strong on an absolute and relative basis, posting first quartile performance in all time periods, and handily outpacing the Dow Jones Global Health Care Index. It has also done a great job in protecting investors’ money. Historically, when the healthcare sector has lost money, this fund has lost much less, while managing to outperform when markets are rallying.
Another reason I like to have some healthcare exposure in a portfolio is that is has exhibited a relatively low level of correlation to the traditional asset classes. As of October 31, the correlation between the TD Health Sciences Fund and the S&P/TSX Composite was 0.28. This will allow it to provide some reasonably compelling diversification benefits when included in a well-diversified portfolio. The biggest drawback to this fund is its cost, with an MER of 2.82%. That said, to date, it has more than justified this cost when considering the risk reward profile and historic return.
While this fund has done well, I would likely still favour the CI Global Health Sciences Fund. It has delivered stronger returns on both an absolute and risk adjusted basis, and carries a lower MER.