TD Waterhouse Private Investment Counsel has launched a new pair of investment funds targeting high net worth clients, designed to deliver stable and positive returns in any market environment.

On Friday, the discretionary money management arm of the bank launched two TD Private Target Return funds that seek to achieve specific levels of return over a market cycle, rather than chasing the highest possible level of returns.

“We’re trying to deliver positive returns regardless of the market environment,” said Bob Gorman, chief portfolio strategist at TD Waterhouse.

The TD Private Target Return fund targets absolute returns equal to Canadian Treasury Bill returns plus 3%, and the TD Private Target Return Plus fund targets T-Bill returns plus 5%.

The funds are designed around a strategy called liability-driven investing, which seeks to provide investors with sufficient income to cover their fixed expenses.

“We are trying to have more stable returns that could represent a part of a client portfolio that will meet those fixed obligations,” explained Gorman.

The funds aim to minimize volatility in order to provide a level of income that is as predictable as possible. Gorman noted that investors are increasingly seeking out stable investment income as they move towards retirement, particularly as pension plans become less prevalent.

He expects the Private Target Return funds to appeal to investors who currently have many of their assets on the sidelines, and are seeking investments that are safe but offer higher potential returns than money market securities.

“We think this is a vehicle that should generate very worthwhile incremental returns for them, but with very well-controlled risk,” Gorman said.

The fund holdings are primarily comprised of fixed income securities, such as investment-grade corporate bonds, high yield bonds and preferred shares. But the fund managers have flexibility to hold other types of securities as well. For instance, Gorman said the portfolios could hold dividend growth stocks, commodities, and exposure to emerging markets, and could use put and call options.

“The manager has the latitude to go into all investment types and geographic regions that he or she thinks will be appropriate,” he said. “We don’t have the same constraints in managing this that most managers do in managing relative return portfolios.”

The Private Target Return Plus fund currently holds a greater proportion of high yield debt in order to produce the higher level of returns that it targets. As a result, it will carry a slightly higher level of volatility, but Gorman said the fund’s managers will be diligent about seeking stability.

The funds will pay distributions on an annual basis.

IE