WPTV Exclusive: Income and growth

In this episode we talk with Ben Gossack, CFA, vice president and senior portfolio manager, fundamental equities, TD Asset Management about how advisors can get both income and growth in one solution.

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Speaker1: [00:10:45] Right, perfect. Switching camera to Darren. Hello, everyone, and welcome to this WP TV exclusive, I'm Darren Matte, editor of Wealth Professional Canada Magazine. And today I'm happy to be joined by Ben Gossack, vice president and director, senior portfolio manager, Fundamental Equities, TD Asset Management. Ben, great to see you.

Speaker2: [00:11:11] Thanks for having me, Darren, always. Now you got me in my head. OK, I'll start again, Darren. Thanks for having me. Really appreciate coming on your program.

Speaker1: [00:11:26] Now. Income has been a hot topic as of late, with more investors looking at different strategies to supplement what traditional income no longer provides, and many advisers are looking to enhance their income in this low rate environment. But the question often arises of how? However, it's something that TDA, Hardees and I did at this time, and I even have it abbreviated so that I know to go TDAM

Speaker2: [00:11:52] But sometimes, yeah, I mean, I'm not a stickler on these things, like at work.

Speaker1: [00:11:59] Here we go again now, income has been a hot topic as of late, with more investors looking at different strategies to supplement what traditional fixed income no longer provides. Many advisers are looking to enhance income in this low rate environment. But the question often arises of how?  It's something, though, that TDAM believes they have solved with one of their solutions that allow advisers to gain growth and income all in one. So, Ben, tell me a little bit about TGED and this enhanced dividend strategy. What was the motivation to bring it to market and were investors looking for something that other solutions just weren't providing?

Speaker2: [00:12:36] So thanks, Darren. You know, I think the need and desire to create income has actually been going on for quite a while and there's been more and more pressure to generate that income, I think, for financial advisers. Even going back to the recovery from the 0809 financial crisis, we've been in a fairly low interest rate environment. And so if someone had built the nest egg and interest rates have been cut by half all, they kind of have two avenues. They either go up the risk curve to generate more yield or they got to find more nest egg. And that can be very challenging when you start to get into your late 40s and 50s and 60s. I say as an industry, we've come to the market with sort of two solutions, high dividend yielding stocks. So these are stocks that are giving you four or five, six percent yields, but they're typically ex-growths. So you don't really get much of a price appreciation. And sometimes they have price depreciation that overwhelms dividend on the other side. We've had a lot of covered call strategies come to market. So think about a basket of stocks and someone goes in and systematically giving up some of the upside in order to provide income today. And we have seen time and time again that that typically underperforms. And so with TGED, the TD Act of Global Enhanced Dividend ETF, we're trying to marry the two, which is to give investors income, but at the same time also provide them growth. Because I do believe in this environment going forward, investors do need growth along with their income.

Speaker1: [00:14:16] Now. So tell me a little bit about the pillars of this strategy.

Speaker2: [00:14:21] Right. So, Darren, what makes us different from the environment out there is that we're completely active. What we find when we look at the market, you may have active stock selection in the core basket, but time and time again, you have systematic call writing strategies out there to generate this enhancement to the, let's say, the dividend income stream. And so we said that that is a paradigm that doesn't really work. And so we apply active stock selection, we do active call writing, and we're not set to any schedule. We're not forced to write any contract just when it looks in the best interest of unitholders. And one thing that we do that's also very unique is that with our cash, we look to get paid to buy stocks that we like at lower prices using our put writing strategy. And when we put that all together, we're able to put together a product that is able to deliver, in our opinion, a better total return experience.

Speaker1: [00:15:23] Yeah, I guess that's where I was kind of going next, what is TD do differently and I guess how does that impact the end investor?

Speaker2: [00:15:30] So I'd say we may feel that we have a great investment team and PMs that can pick stocks, but let's say all else being equal, what we find is that the systematic writing typically doesn't work and it hasn't shown to work, especially in a rising market, which is what we've seen for the well over a decade. And so it requires more work, but you have to approach each stock on an individual basis. So to give you an example, Darren, if I was going to potentially cap my upside, I would approach it differently with a high growth stock versus one that might be sort of mature, like in a staples or health care name one other thing that makes this different than the market is that typically with income strategies, you avoid stocks that don't pay dividends. And so because one part of our objective is to create growth, we will own a portion of our portfolio in non dividend paying stocks. So you can think of these as sort of secular growers, lots of of cash flow, just not paying dividends. And with our covered call writing strategy, we can turn them into synthetic dividend payers. And one thing that you'd be surprised is sometimes the combined effect of a growth stock with a call rate can be better than a traditional company that's paying and growing its dividend.

Speaker1: [00:16:55] Right. Well, that does it for another TV exclusive. I'd like to thank my. Well, that does it for another TV exclusive, I'd like to thank my guest, Ben Gossack  again. Well, that does it for another WP TV exclusive. I'd like to thank my guest, Ben Gossack, for more on him, TGED and TDAM visit td.com/etfs. And, of course, for all the news that matters most to advisors, make sure to check out wealthprofessional.ca until next time. I'm Darren Matte. Thanks for joining us.