Why Sometimes a 4% Return is Better than 8%: Inside a Unique Approach to Dividend ETFs at TDAM
“The TQCD is managed quantitatively. It is very unique compared to other products on the market in Canada. And what’s unique about our strategy is our internal risk model which filters the Canadian universe to exclude non-dividend paying names and names with low financial stability metrics, and then our model seeks to add more. alpha by focusing on names with dividend yield, growth and sustainability of that dividend.
“We also have risk controls in place to essentially exceed the level of exposure we would have in a given industry – 25 to 30 (not more than 30) percent for example (and no individual safety greater than 6%) . We seek to reduce sector risk and individual security risk. The result is a smoother ride and a more diverse product than many other options on the market – especially for Canadians who already tend to prefer home.
This domestic bias, Needham explains, is something that can impact a portfolio – and something that the TD Dividend ETF’s strategies seek to rectify.
“Canadians in general tend to favor the country and invest the majority of their portfolio in Canadian stocks,” he says. “They are already too exposed to a few specific sectors. They are missing out on technology and healthcare in particular, which are the two largest sectors of the US market.
“So we focused on introducing active strategies into Canadian markets. And with respect to Canadian exposure, we want to reduce concentration risk. We also want to encourage Canadians to move more widely beyond our borders to sectors of countries with companies that pay more attractive and more sustainable dividend yields over time. We want to make sure that we provide compelling choices for investors that encourage them to move out of their home country. “