Transcript
ANNOUNCER: TD Asset Management welcomes you to this week's podcast. As a reminder, this podcast cannot be distributed without the prior written consent of TD Asset Management.
JASON MCINTYRE: Hello and welcome to a new podcast series within the TDAM Talks banner called Breadth of Experience, a podcast where we're going to talk about TD Mutual Funds, the strength of the portfolio management team at TD Asset Management, the capabilities and diversity of the team, and to discuss some of the industry acknowledgments, some of the awards given to TD Mutual Funds.
My name is Jason McIntyre and I'm the head of retail distribution here at TD Asset Management or TDAM for short. And I'm happy to have David Sykes, the Chief Investment Officer at TDAM, to speak about our team and our capabilities. David, thanks for joining me. So, Dave, you've been in the CIO chair just about a year coming up soon.
I'm not sure if you would have anticipated what we've seen with rising rates, with market volatility. I mean, we've got investors that have never seen this level of volatility in their investment portfolios. Welcome to the CIO Chair.
DAVID SYKES: Thank you. Look, from my perspective, you know, I've been in the chair just under a year now. I guess I have two broad thoughts. The first is I really have been blessed to work with a remarkable team. We've got over 300 investment professionals who are absolutely dedicated to their respective asset classes and sub asset classes. So that's been terrific and I feel really good about that.
What is less terrific and much more tumultuous has been markets. You know, it's been a - it was a rough year. There's no other way to say it. You think about what we came through going back in time and when we shut down the global economy, we provided massive amounts of fiscal and monetary stimulus and now we're undoing that.
And as you highlighted, rates have been going up in a fashion that no one had anticipated. No one has seen this in 40 years. A year ago, long rates in the United States were at about 150bps. Today, we're knocking on 4%. You know, Fed funds has gone from 0 to 475bps. And while the pace of hikes is going to slow, we still have a few hikes ahead of us for sure.
Very similar in Canada, rates were at the long end. You know, 175, we reached sort of 380 the Bank of Canada has done a lot of work. We're now at four and a half on the short end and I'm taking my cues from the bond market. But if you think about what those rates do, it's really impacted the economy in a way that it's hurt growth.
You know, growth hasn't collapsed the way a lot of people would have thought, but certainly growth has slowed. It's definitely impacted the housing market, not just in Canada, the United States as well. And then you really think about what rising rates means to capital markets and you think about the equity side. You know, there's no doubt valuations have been hurt.
Rising interest rates are a little bit like gravity to stocks. And so, you know, last year was a tough year, not just a tough year for the fixed income market off 10, 12%. But you've also seen equities globally have a really tough go. And I think there's a bit more to go here. I don't think we're through this.
There's no question we've got some worries about inflation, goods inflation has collapsed. You've seen transportation prices have come down a lot, but we still have an issue on the services side, primarily in wages and salary. Unemployment has just been really, really sticky. You know, we're at three and a half percent in the U.S., 5% in Canada, where we've got a very, very strong labor market.
And so, I think right now we're definitely in this data dependent mode and looking forward, people are, trying to read the tea leaves and see where we're going to come out the other side of this.
JASON MCINTYRE: So, I think you know, with that as a bit of an investment background and market outlook, both past and what we can look forward to when we think about investment advisors positioning their clients and a lot of our investors, we've seen a massive rush into cash over the last year. We've seen record flows into things like money market ETFs, GICs have just flown off the shelf.
And so typically when we see volatility, we do tend to see retail flows going into those those areas, not surprised, but coming out of it, there's always this question as an investor, when's the best time to get out of the market? So, you might have made a really good call going from a more volatile asset class into something more secure.
And again, everybody's got different risk profiles and different goals that they're planning for. But for those that are holding cash-like instruments or GICs today and thinking about what might be a good time to get back into the markets, what would you say to that and how would you coach people through that?
DAVID SYKES: Yeah, look, from my perspective, it really all depends on what the objective is and what you what you're doing with the capital. You know, if you are if you're someone who's got a large purchase coming up in the next six months or nine months, whether it's a university tuition payment or a car or a house, I totally understand the desire to be in a cash instrument, whether it's money market, GICs, totally understand that.
But if we're talking about an individual who has a financial plan or an investment horizon of five, ten, 15 years, I think tactically you can make an argument that it might make some sense to hold a little bit higher cash. But, you know, in that example, you go from 2% to 4% or something of that magnitude. When I hear stories of folks sitting on 20 or 25% cash, it does give you a bit of pause.
You're taking quite a bit of risk in in view of that long term plan. No one knows exactly how we're going to come out the other side of this. No one knows exactly how the inflation story will unfold. But I think it's pretty clear that we're getting closer to the end than the beginning. And if you've got a decent horizon, I think it's really important to understand that your number one driver over time with returns is asset allocation.
And you know, regardless of whether you're more in equities, more in fixed income, more in alternatives, that asset allocation mix is going to drive your returns. And if you're now in 20 to 25% cash as an asset allocation decision, that's going to negatively impact your return on a long-term basis. So, I think I think the evidence on that is very clear.
I think it's empirically proven out over time. It's easy to say, it's harder to do because obviously markets are volatile, and we are data dependent. But in my mind, I think the solution going forward is, you know, on those down days, that's the time to start. Dollar cost averaging in. And remember that this is not a decision you're trying to make for the next six months, the next three weeks and turn of time, things.
But if you're investing in quality equities, if you're lending your money to great corporations, that are going to pay you back on a timely basis. If you're investing in alternative strategies that provide you a consistent income with growth over time, let's be honest and say, you know, no one can time this perfectly. And I think it's better to have exposure to that asset class over time to meet your financial need, as opposed to this being in 20 or 25% in cash.
DAVID SYKES: So that would be how I would approach that.
JASON MCINTYRE: Very well said. Thanks for that. Now, maybe if we can just finish off. You know, I've been here myself at TD Asset Management for the past four years and coming in, I was certainly familiar with the reputation TD had for their capabilities on the fixed income side, and that's certainly true. One of the things that has been very evident is our capabilities and our depth and breadth of capabilities across a number of different asset classes and styles of investment and types of things that we do here.
You know, as a result, we won a record 12 FundGrade A+ awards recently, most of those in the Balanced and Equity categories, which was just fantastic. Love your thoughts on as you're thinking about building out your team, our investment capabilities, just with our overall investment excellence up to this point, maybe some comments about your team and how you see things in the future.
DAVID SYKES: Yeah. So, I think it's absolutely fair to say historically that TD Asset Management had its foundation in fixed income. I think we were leading and continue to be a leading fixed income provider for institutional and retail clients: pensions, endowments. I think that's absolutely true. But I think, you know, over the course of the 25 years I've been here, made a real concerted effort to increase our capabilities on the equity side and on the balanced side.
And I think those FundGrade awards that you mentioned, that's great validation for what we've done. Rest assured, the number one job I have is investment excellence, investment performance across all of our mandates. But I do think on the equity side, I mean, we've got a fantastic Canadian franchise, we've got wonderful capabilities in the United States, and it doesn't end there.
I mean, we've got global capabilities. We've got recognition and awards for our China Income and Growth Portfolio. We literally can handle, you know, investing and competing with the very best across any geography globally. And I think that's really a testament to two things. It's really about the process that we follow and the disciplined process we follow. And it's about the people.
And as long as our people remain committed to that disciplined investment process, I think that does lead to performance. And that's exactly why we wake up every day and we're here for our clients. And so, from my perspective, you're right, great fixed income shop, but we also have amazing capabilities on the equity side and that really has translated through some recognition in the marketplace.
JASON MCINTYRE: Well, Dave, that's excellent. I really appreciate you taking the time today and want to thank you and your team for the excellence that you provide to us and our clients. And want to thank you for joining us today.
DAVID SYKES: More than welcome. Great to see you.
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