Anish Chopra describes the two TD Target Return funds that he manages as "outcome-based solutions" developed in response to investor concerns about market volatility. "Investors came to TD Asset Management and the issue was: Is there a better way to more align the client with the fund manager for positive returns and managing volatility?"
Of the two funds, the more popular has been the $1.8-billion TD Target Return Conservative, the more conservative of the two. The other is the $781-million TD Target Return Balanced.
Chopra, managing director, investment management at TDAM, has served as the lead manager of the funds since their inception in September 2011. Jonathan Shui is the co-manager on the funds, and the duo taps into the other teams, including the risk-management team
The target-return funds are only part of Chopra's growing responsibilities at TDAM. In February, he assumed a newly created supervisory role for the core Canadian equity team and the target return team.
Chopra now oversees an integrated team responsible for TD Canadian Equity and TD Canadian Blue Chip Equity, managed by Mike O'Brien, a vice-president and director at the firm, and TD Canadian Value, for which Chopra continues as lead manager.
Chopra, who has 17 years of industry experience, is a 1994 graduate of the University of Waterloo. He received both an honours BA and a masters of accounting (gold medalist). In 1995, he received the chartered-accountant designation.
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During the co-op program at Waterloo, Chopra spent some time at the accounting firm KPMG. He then joined TD Securities in 1996 as a member of the mergers and acquisitions group. In February 1998, he moved to TDAM, at first managing internal assets. He received the CFA designation in 1999.
Chopra says the target-return funds represent a "tip-toe strategy back into the market" for risk-averse investors. The key difference between the two funds is the target rates of return (which aren't guaranteed) and the different kinds of investments held to attain these rates.
The conservative mandate has a target return of T-bills plus 3%. "So in today's environment when the T-bill rate in Canada is 1%," says Chopra, "our target rate is 4%, and that's before fees." (The management-expense ratios for the no-load Investor series, which reduce returns, are 1.81% for TD Target Return Conservative and 2.46% for TD Target Return Balanced.)
For the balanced mandate, the target rate of return is the T-bill return plus 5%. In an environment in which T-bills are yielding 1%, this translates into a target rate of 6% before fees. Chopra attempts to achieve these targets over a rolling five-year period.
Most of the assets in the conservative target-return mandate must be held in fixed income, and this portion also includes the cash component. The balanced mandate can have greater exposure to other asset classes but will often have greater exposure to fixed income than direct equity exposure. Despite these constraints, the managers have the flexibility to take advantage of opportunities in different segments of the fixed-income market.
One such opportunity, says Chopra, arose in the fall of 2011 when high-yield spreads in BB-rated bonds "spiked to the third highest level over the past decade."
Despite the macroeconomic concerns on the global markets, the managers believed that the high-yield asset class in the U.S. continued to be characterized by many strong issuers with solid balance sheets and low expected default rates.
As high-yield spreads came down, Chopra shifted away from this segment of the market, and from bonds generally. To illustrate, as of Jan. 31 the balanced fund's fixed-income holdings had fallen to 54%, down from 81% at the end of November 2011. The high-yield bond position dropped from 63% to 44%.
In today's low-yield bond environment, the managers are still finding "pockets in the market," says Chopra. With the global scope, "let's say in the emerging markets, you're able to find opportunities where the yields are different."
Over that same period, Chopra increased the balanced fund's cash portion to 35%, up sharply from 11%. The cash position serves as a cushion during a market downturn and also provides a reserve to take advantage of buying opportunities. As for the equity portion, the target-return funds can invest anywhere in the world, "so it's a global fund in that sense," says Chopra.
Recently, Chopra has been addressing client concerns about interest-rate increases and the positioning of the target-return funds. "The answer there would be we've got a barbell strategy," he says. "The high cash balance would just be invested at the new higher rates because they're invested in very short-term bills. And with high-yield bonds, as long as interest rates don't increase dramatically, high-yield bonds aren't a bad place to be."
