TD Entertainment and Communications Fund is a buy for above-average appreciation potential if you’re willing to accept a higher level of risk to achieve that goal.
We’ve added TD Entertainment and Communications Fund (Fund code: TDB652(NL)) to our Mutual Fund Planning Guide. It replaces Chou Associates Fund, which we have removed from the Guide, and which we now recommend you sell (see below).
TD Entertainment’s investment objective is to achieve long-term capital appreciation by investing primarily in companies whose products and services relate to the entertainment, media and communications industries. The fund also looks for companies that will benefit from the convergence of these sectors, favourable regulatory changes and favourable financial markets that provide much of the needed capital.
The fund’s sub-advisor seeks to achieve its objectives by investing at least 65 per cent of the fund’s total assets in the common stock of companies in any facet of entertainment, media and communications that may include leisure, publishing, movies, cable, telephones, cellular services, technology and equipment. Stock selection is based on fundamental, bottom-up analysis, seeking to identify companies with good appreciation prospects, using a growth or value style to stock selection.
Among the key reasons that TD lists to own this fund is that rapid advances in technology offer potential opportunities for strong long-term capital appreciation for aggressively-minded investors.
Another reason to own the fund is that it has been sub-advised by Baltimore-based T. Rowe Price since its inception in 1997. Since then, its compound annual growth rate is a stellar 12.1 per cent.
Returns over the past decade are also strong. Annualized returns for the past three, five and 10 years, are 16.5, 19.3 and 14.3 per cent, respectively.
Top performer in global equity fund category
Since it’s grouped into the global equity category, it’s difficult to draw meaningful comparisons in performance between the fund and its peers, which consist of more diversified portfolios. Nonetheless, within the global equity category, TD Entertainment and Communications has performed in the top half of the category in eight of the past 10 years. In seven of those eight years, it was a top-quartile performer.
While its focus on a narrow range of industries increases risk, the fund reduces risk through geographical diversification. It has 78 per cent of its assets invested in US equity, 21 per cent invested in international equities and one per cent in cash.
The fund’s top holdings include Amazon.com, Booking Holdings (formerly The Priceline Group), China’s Alibaba Group, Facebook and Alphabet (formerly Google).
The fund’s management expense ratio is on the high side at 2.82 per cent, but is probably worth it given the fund’s objectives and past performance.
TD Entertainment is a buy if you want above-average appreciation potential and you’re willing to accept a higher level of risk to achieve that goal.
Sell Chou Associates Fund
Value investing has been out of style for several years now. That means many funds that adhere strictly to this style of investing have underperformed their more growth-oriented counterparts.
Chou Associates is one of these funds. Over the past 10 years, the fund’s compound annual growth rate of 5.1 per cent ranks in the third quartile of the global equity fund category. In the past five years, the fund’s 3.2-per-cent annualized return is just a fraction of the 11.4-per-cent average return in the category. And in the past one- and three-year periods, it lost 4.8 and 3.2 per cent, respectively, to rank near the bottom of the category.
The fund’s volatility has also been quite high compared to the category average. Standard deviation over the past three years is 16.9 versus the category average of 10.0. This makes the fund ill suited for more conservative investors.
In years past, Chou Associates has delivered strong performances. But in recent years, it has posted just fourth-quartile results. Value investing may regain its lost lustre in the years to come, but it may take quite a while before very patient investors are rewarded. Investors who would rather move funds to some of our more consistently strong performers should sell now.
This is an edited version of an article that was originally published for subscribers in the June 1, 2018, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.
Money Reporter, MPL Communications Inc.
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