Justin: But we have to be very, very conscious of the compound bets that we make in one specific area where the sources of cash flow are being driven by one specific thing.
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Announcer: For the 13th consecutive year, TD Asset Management has been recognized for investment excellence with a record-breaking 24 TD mutual funds, TD managed assets program portfolios, and TD ETFs earning fund grade A+ awards. These accolades highlight the strength and consistency of our investment strategies.
But today, we're going beyond the awards. In this episode, we dive into what truly sets TDAM apart. Our unique approach to structuring investment solutions, uncovering opportunities in the market, and delivering consistent performance for our investors. Now let's join our host of the Breadth of Experience podcast, Jason McIntyre, and today's guest, Justin Flowerday, as they explore the insights behind the results.
Jason: Justin, great to see you. How are you?
Justin: I'm well. Thanks, Jason. Good to see you as well.
Jason: Really appreciate you joining us today. We're going to dig right in. Over the next few minutes, I want to talk about a few things. I want to talk about this market uncertainty.
There's always uncertainty in the markets. That's what makes markets. But I think that right now looking forward, there's a lot that we can talk to and I know the listeners are interested in. We're going to talk about finding opportunities and maybe some sectors that you and the team are looking at.
But before we get into that, I don't want to brush by these fund grade A+ investment awards. Winning 24 of them-- that's quite the accomplishment. I mean, it's just phenomenal when we look at, from my perspective, the performance and the consistency of performance over time that we seem to be generating within TD Asset Management, and certainly on your team. Talk to me a little bit about what's setting us apart and some of the fundamental things that we're looking at that are helping drive those performance numbers.
Justin: Maybe it'll help by just kind of giving an overview of the team to start. On the equity team, we're a group of 40 investment professionals spread across three different kind of groups. So we have a portfolio management group. We have an empirical research group. And we have a fundamental analyst group. And together, we manage over $100 billion in assets across geographies and mostly with a single philosophy of kind of quality bias in mind.
And your question about, what sets us apart? Look, let's not sugarcoat it. Everyone says they have something that sets them apart, that makes them unique. And some do, and I think many don't.
The way I think about it at TDAM, and for our group in particular, is I'll talk about what I think is unique. But we've developed a process and have implemented a process over many, many years. The goal going in wasn't to make it unique. It was to develop a process that's going to allow us to outperform for our clients.
And if I were to think about what's unique about the process, I think we could start with the way the group is organized. And I'd point to the fundamental equity analyst team, actually, to start-- interesting structure there.
We have a group of 20 analysts that cover 20 industries across twen-- sorry-- seven sector hubs. And the way it's rolled up is it's based on our proprietary TD classification system.
And so when you think about the way most coverage-- most coverage works at firms, you have something called GICS, which is a third-party classification system. And it doesn't take into consideration businesses and market exposure, their balance sheet intensity, their capital intensity, their business model. And we call it TDICS, and it really allows the analysts to collaborate in, I'd say, a unique way that is really, really helpful for idea generation.
I think it ends with the portfolio management team. And this is a team that has a very rigorous approach to portfolio construction, and they have a process that they follow relentlessly day after day, week after week, month after month. And I think those are two things that have really kind of helped us do well in the recent years.
Jason: So I worked with a gentleman many years ago, and he used to talk about markets. And he used to say the famous last words that everybody says, "It's different this time," meaning it's not different this time. We just see these continued repetitive things. Yet, people want to say that.
And I think you're right. Asset managers, we're unique, we're different, and we do things differently. Yet, everybody's kind of the same. You don't need to go into details, but what is one thing, as you look at your team and what you guys do, what's the one specific thing that you would say makes the biggest difference and generates the type of relative performance returns that we're seeing when we're winning these awards? What's the one thing that you would pinpoint?
Justin: The one word I'd use is partnership. And I think it's partnership between the portfolio managers and the analysts and between those two groups and our empirical group, which is being led by Jeff Evans, who is a phenomenal individual, phenomenal thinker, provides incredible insights for portfolios.
I think it's a partnership with risk management, where we have the ability to gain huge insights in terms of exposures, in terms of all the types of characteristics that drive portfolio returns. And so I think the one thing I would say is partnership.
Jason: Yeah, and I think you're right. That risk management piece, it's one that we-- years ago, there was very little discussion about risk management in portfolios. It's something that has really evolved and is really obviously one of the most important things, as you guys look and for us to be able to articulate how we manage money with a risk lens. I think that's really important and certainly would set us apart from a number of others.
Let me shift gears a little bit and talk about opportunities. So you mentioned about the sector coverage and how we sort of allocate resources internally. But what are some standout sectors that have been driving performance, and where are we kind of looking to maybe look for opportunities moving forward?
Justin: Yeah. So another way we talk about kind of breaking up groups of companies is-- it's through sectors, through GICS. It's through our internal classification system. And the other one is just through themes that we look at investing in.
And I'll go back to your first question about thematic investing. Is it something that everybody does, and is it different? And I look at the way people talk about thematic investing, and one of the things that strikes me is that it's x kind of anomalous with short-term momentum. And I find it really intriguing that people can identify some momentum. They want to jump on the train and really don't care about the destination because the train is going really fast.
For us, it's really, really different. And we have collaboration between the teams, and we study tons and tons of themes. And I'm happy to speak about kind of a theme. I mean, I can point to global travel as an example of a theme that we have exploited, I would say, in the last 3, 4, or 5 years.
And when you think about global travel, the secular tailwind there is you have global air traffic growing at two and a half times GDP, and it's been doing that for decades. And the problem or the challenge can be, OK, great. You've got this big secular tailwind, but there's complications.
It's like, how do you exploit that? Do you go invest in the aircraft makers, into the engine makers? Do you invest in the cruise line operators, into the travel companies-- lots of different ways to exploit that.
And I would actually throw on a bit of a geographical kind of lens to that, as well, because when you look at global air travel, you have the US, which has actually experienced down air travel since the pandemic. And then you have Japan, which has been growing air traffic for 15% a year for 15 years. So lots of different things to kind of evaluate there.
But for us, we have exploited that a few different ways. One of them is through Howmet. It's a company that actually provides parts into aircraft engines. So we haven't gone for the big Boeings, which has actually been a losing stock for a decade. We've gone deeper into the supply chain.
And we've exploited that through this company, which has a phenomenal management team. Great capital allocation. Just happens that the stock has done really, really well in the last couple of years. And that's been an example of a theme that we identified early and have been exploiting the portfolio.
Jason: That's terrific. Everybody always likes to hear about names and companies, so let me put you on the spot. Give me a name of something in the past that we've uncovered using that process. Talk to me about another example of where we've actually uncovered a really good company that people probably weren't looking into through the process that we have that's developed exceptional returns for us. But I'm sure there are many.
Justin: Sure. Yeah. No, happy to do that. If I were to go back over the last five years, there would be a few. But something that's different. I can think of one company that we invested in post-pandemic. And it was, again, this sector allocation wouldn't really give you much of a lens into what we were thinking.
But at the time, there were-- we were coming through a global pandemic. This idea of public safety was in mind. We've had natural disasters. We've got geopolitical tensions. So this notion of public safety as an investing kind of arena was something that drove some idea generation, and came across a company called Motorola Solutions. So you'll remember Motorola from back in the day.
Jason: Of course. The old flip phones.
Justin: The old flip phones. And that was what Motorola was known for. And they decided a long time ago to get rid of the flip phones because they were getting commoditized. It wasn't a technology that they could innovate with. So they sold that, and they doubled down on their core business, which is land and mobile radio networks.
So they operate a network of fixed radio. And it allows federal agencies and states and counties emergency services to always stay connected, which is super important because when things happen and a network goes down, you need to have some means of always staying connected.
And they've added on to their portfolio of products by getting into kind of video. And as video has been become a bigger part of police forces, monitoring, and in train stations and all kinds of different areas, they've been able to add on through that.
And so I think about this company, and I look at the-- again, back to the capital allocation, getting rid of an old business that was kind of sexy at the time, but just wasn't going to generate the kinds of returns they saw, focusing on something that was core, that was generating great returns where nobody else can provide these products.
There's one mobile radio network that is [INAUDIBLE]. So these are life or death situations. They're not going to end up transferring to something else. And I'm actually quite proud of the team for identifying this because you mentioned something maybe that wasn't as popular. Like, nobody was talking about Motorola Solutions 3, 4, 5 years ago, not covered heavily on the sell side.
But because of discussions between analysts and PMs, thinking through different ways to exploit changes in the market, this was a name that was purchased across several portfolios and ended up generating quite a bit of value for portfolios.
Jason: That's terrific. I appreciate that story. Listen, maybe lastly, we'll just-- we'll touch on market uncertainty. Justin, as we sit here today, we're sort of in the midst of all of the talk about tariffs. It's everything that's been on the news this morning. It's creating a lot of uncertainty. And you see a lot of volatility within all sorts of markets across the globe.
How are we navigating these sort of uncertain times? If you're an advisor listening to the podcast, what are some of the things [INAUDIBLE] that they can take from what we do to think about market uncertainty? And how can that propel us for investment success looking down the road?
Justin: You know, when I think about maybe one of the competitive advantages of a firm like ours, in terms of approaching a market like we have today, is the ability to see the world evolving through different asset class lenses. I mean, we're a leader in equities. We've been talking about equities. But we're a leader in fixed income.
Fixed income is where a lot of the kind of risks start to emerge, and you can sniff out some of the dislocations in the market-- leader in asset allocation, leader in real assets through our real estate and infrastructure. And so getting the brightest minds together and having really smart people talk about shifting landscapes allows you to get a great perspective, I think, of the risks and where those pockets of risks could emerge and pockets of opportunities can emerge. And so that's something I would point to.
But in terms of how we manage the volatility on the equity team and how we go about trying to ensure that we're going to generate the best risk-adjusted returns for clients, I mean, beyond the traditional lens of diversification that a lot of the advisors out there would be, I think I could point to maybe a bit of a unique diversion, which relates to kind of how we think about portfolios.
So there's a traditional thought to think about portfolios as obviously groups of companies and groups of stocks that act together. And one of the ways we think about it is through thinking about our portfolios as collections of cash flows. And for us, what we want to understand is the sources of those cash flows. How diversified are the sources of those cash flows?
And probably, actually, ties back to some of the themes we talked about before. And look, I'll actually tie it into travel. Think about travel sector. Again, a lot to exploit that. But we have to be very, very conscious of the compound bets that we make in one specific area, where the sources of cash flow are being driven by one specific thing.
So again, there's American Express. There's Hilton. There's Howmet, that we talked about. There's other companies spread across consumer discretionary, financials, industrials, all these different sectors. You'd say, oh, I'm diversified.
Well, you're not really diversified because the sources of the cash flow are all tied to travel. And it's another lens of risk management on top of portfolio construction that allows us to be comfortable that in a period where left-tail events can occur, you're not overexposed to one specific thing.
Jason: So it's interesting. I mean, we always talk about diversification at the broadest levels for investors and clients. But even within our equity portfolios, the number one consideration to handle uncertain markets-- diversification. It's very interesting.
Listen, Justin, that was fantastic. I really appreciate, first of all, the work that you and your team do to support our business and support our clients. The results speak for themselves. Congratulations again on those. And really appreciate you taking the time to speak with me today.
Justin: Thanks, Jason.
Announcer: Thanks for listening to this great discussion on what sets TM's investment approach apart, from the deep research that uncovers opportunities, to the disciplined strategies that drive long-term, risk-adjusted performance. On the podcast, we also explored how adaptability and shifting markets continues to be a key strength.
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