Fund in Focus: TD U.S. Blue Chip Equity Fund

Multi-year FundGrade A+® Award winner

Managed since inception in 1996 by Larry Puglia and the research team at Baltimore-based T. Rowe Price, the TD U.S. Blue Chip Equity Fund continues to excel, gaining 0.8% for the 12 months ending March 31. That may not seem like much, but then when compared with the 1.5% loss for the S&P 500 Composite Index in the same time period, it seems pretty remarkable for a U.S. equity fund during the biggest market panic since the 2008-09 financial crisis. It reinforces why the fund currently has a FundGrade A rating and why it’s a perennial FundGrade A+ Award winner.

Mr. Puglia looks for companies that have above-average, sustainable growth prospects, a history of generating strong free cash flow, and a management team with a demonstrated ability to effectively allocate capital. He shuns those companies that have highly-levered capital structures. The result is a diversified, yet concentrated, portfolio, which at the end of March held more than 124 names, with the top 10 making up about 44% of assets in the portfolio.

As of March 31, top holdings included Amazon.com Inc. (9.1%), Alphabet Inc. (6.1%), Facebook Inc. (6.2%), Microsoft Corp. (5.2%), and Alibaba Group Holding Ltd. (4.4%).

With a host of well-known growth companies, Mr. Puglia takes meaningful positions in which he has high conviction. For example, the fund has held Amazon.com since November 2004, Facebook since October 2012, Apple Corp. since April 2006, and MasterCard Inc. since August 2007.

The fund really has exposure to only a limited number of growth sectors, (technology, consumer discretionary, healthcare, financial services, industrial services, and industrial goods). Valuation levels are well above the broader market, with the fund posting a price-to-forward-earnings ratio of more than 23 at the end of March, compared with roughly 16 for the S&P 500.

Performance has been excellent, with the fund delivering a 10-year average annual compounded rate of return of 15.4% to March 31, compared with the category average of 4.4%, while its 3-year annualized return was 12.8%, compared with the 8.4% for the category average.

And with an average 3-year standard deviation of 13.7, volatility is in line with the category average of 13.6 and slightly above the index’s 12.6. The fund also captures a meaningful part of the market’s downside. For the past five years, it has experienced roughly 114% of the upside, while participating in more than 82% of the downside. Still, volatility has been somewhat offset by strong performance.

Given the fund’s higher volatility, I would not be comfortable with it as my core U.S. equity holding. Instead, I’d use it as a potential return enhancer within a more diversified portfolio. For those looking to test re-entry into the market, the fund remains an excellent growth-focused choice.

TD U.S. Blue Chip Equity Fund
Fund company: TD Asset Management
Fund type: U.S. Equity
FundGrade: A (February)
FundGrade A+ Awards: 2012, 2012, 2015, 2018, 2019
Style: Large-Cap Growth
Risk level: Medium
Load status: Optional
RRSP/RRIF suitability: Good
Manager: Larry Puglia since October 1996
MER: 2.38%
Fund codes: TDB3110 (Front-end load), TDB123 (Low-load)
Minimum investment: $500

Dave Paterson, CFA, is a money manager and an expert on investment fund research and due diligence on a variety of investment products.

Notes and Disclaimer

Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently, and past performance may not be repeated. No guarantee of performance is made or implied. This article is for information purposes only and is not intended as personalized investment advice.