podcast

The Winning Edge: A conversation with Damian Fernandes, Portfolio Manager, TDAM

Published:19/11/2019


Investor Knowledge +clock10 Minutes = Confident Investing


Damian Fernandes joined TD Asset Management Inc. (TDAM) in June 2012 and has over 14 years experience in global equity market investing.  He is the lead manager of several TD funds including TD Global Equity Focused Fund and TD Global Tactical Monthly Income Fund. Damian is also co-manager of TD Tactical Monthly Income Fund and TD U.S. Monthly Income Fund, recipients of 2019 Refinitiv Lipper Awards. Damian has a Bachelor of Commerce degree from the University of Toronto and is a CFA charterholder.

On an unexpectedly snowy November morning in Toronto, we caught up with Damian to find out more about his team's investment philosophy and his thoughts on what the future may hold for the markets.
Let's get to know a little more about Damian and his team.

What inspired you to become a Portfolio Manager?

The most interesting thing about being a Portfolio Manager is the intellectual curiosity aspect. In my role, I'm constantly learning about economic developments or what's happening on the policy front and how this might impact markets. I learn about companies, what's evolving in various sectors — it's a constant learning process. This education gives me an interesting front row position to key developments in the world. So it mainly comes down to intellectual curiosity, and I can't think of another role that would allow this level of learning. 
 
I also feel that our team can truly make an impact – we work hard to deliver performance, and that means more than just numbers on a page. Whether it's saving for a child's education, or growing their nest-egg, we help Canadians by delivering consistent performance. There's a congruence with what we're delivering and how we benefit society as a whole. We strive to deliver performance that people are using to enhance their lives.

What are your thoughts on the geopolitical landscape and overall investment climate? What do you see for the markets in 2020?

People should focus less on the headlines and try to differentiate between news volatility, which is on full blast in this echo chamber, and market volatility. The two should not be confused. I always like to say don't read the front-page news, because it seems to give the wrong impression of what's really going on in the world.  It feels like we're in a negative reinforcement cycle, where only negative news sells, creating a fair amount of fear. But what drives markets is growth, cash flows, level of rates and central bank accommodation. Most of the fundamental drivers of markets are actually constructive. 
 
I believe that the market strength we've seen this year could continue into 2020. We've had an easing of geopolitical tensions, and there's been talk about a trade truce, as opposed to escalation. Central bankers globally have been very accommodating, and we're seeing plenty of rate cuts and fiscal stimulus. What's going right are fundamentals – and this is what drives markets. We are not oblivious to the Trump tweets, but focusing on tweets is not an investment process. That said, many continue to discount this reality.  

As a fund manager what does it mean to be a repeat Lipper award winner?

We are extremely appreciative for Lipper's acknowledgement, and I speak on behalf of the entire investment team. What we do is stick to our process, keep our heads down, continue finding companies that are underestimated by the market and invest in them. We position our portfolios with a focus on the economy and data-driven decisions. Ultimately, it's our systematic investment approach that has led Refinitiv Lipper to recognize and validate our high level of performance, and I hope that our continued application of this process will lead to future wins. We steadfastly maintain a strong commitment to generating long-term outperformance, and I'm proud of our track record.

How do you determine which stocks make the grade for an investment portfolio?

Our process is fairly simple – we believe that the market tends to underestimate the value of many companies. We feel this is exploitable. We work diligently to find high-quality companies that deliver strong margins, lower leverage, and access to growth. We invest in industry leaders that keep taking a larger share of the pie, as this is what leads to outperformance. 
 
We focus on things like industry competition, debt levels and financial flexibility. We like to own companies that are consistent strong performers, but never lose sight of what potential risks may lay ahead. I firmly believe that if we stick to our process and these companies continue to increase their financial strength and positioning, then the investment portfolios will be higher over the longer term.

How does your investment process help navigate through challenging market environments and improve performance outcomes for investors?

I'll give you an example of a process that we can leverage to manage risk during extreme volatility. Take a look back at the fourth quarter of 2018 - when markets corrected around 20%. We got our cash balances working for us, selling put options in some of our portfolios when the market was dropping. To be clear, what I mean by selling puts, is selling insurance. We operate on the principle that the best time to sell insurance is when premiums are highest - when people are panicking. When is the best time to sell house insurance in Florida? It's right after a hurricane hits, that's when premiums are highest. In the initial part of the drawdown, or market selloff, we were selling puts and earning very attractive yields.
 
As the drawdown accelerated, and went into panic mode, we saw opportunities to buy stocks outright at depressed valuations. We always maintain a very disciplined approach. When quality large cap stocks are impacted by excessive broad-based selling, investment opportunities are created. Our thesis remains the same during periods of market stress. When strong companies go on sale, we use volatility to identify attractive entry points at better prices.

If you were given an opportunity to change careers, what would your new career be?

Hmm, that's a hard question. Maybe an Instagram influencer – I'm joking, I don't have the style for that! Over the past 20 years, the internet has democratized access for companies. Before, a company needed a supply chain and an established product to be successful. Now anyone can open a Shopify account and have an idea that could be wildly successful. One of the things I find really interesting is education tech – like 'ed tech.' You have these successful firms, private companies that are very profitable by providing online education at scale. I would offer teaching services to lower income communities and make it fun at the same time. Using technology to reach the masses is a fun way to educate and it could also be profitable. As much as I love what I do, if I had to start over again, I would start a business that utilizes technology in a way that was not possible 20 years ago.

What advice do you have for the next generation of investors?

Probably the same advice my mentors gave me 18 years ago. Focus on the fundamentals and the power of compounding. The problem is that we live in an age of instant gratification. Everyone is looking for the next big 'get rich' investment or scheme. Because of the non-stop news cycle and access to technology where you can trade on a phone app, this could easily lead to bad decisions. Buying businesses and letting them grow is how you build wealth over the long-term.  There's no quick fix or easy answer. Avoid day trading in and out of portfolios – own a group of companies that have a proven track record and invest for the long term.
 


Disclosures:
The TD U.S. Monthly Income Fund C$ - Investor Series was awarded the 2019 Lipper Fund Award in the Global Neutral Balanced category for the year ending July 31, 2019 out of a total of 134 funds. The TD Tactical Monthly Income Fund – Investor Series was awarded the 2019 Lipper Fund Award in the Tactical Balanced category for the year ending July 31, 2019 out of a total of 31 funds. The Lipper Fund Awards, granted annually, are part of the Refinitiv Awards for Excellence awarded by Lipper, Inc. and highlight funds that have excelled in delivering consistently strong risk-adjusted performance relative to their peers. The Lipper Fund Awards are based on the Lipper Ratings for Consistent Return, which is a risk-adjusted performance measure calculated over 36, 60 and 120-month periods. The highest 20% of funds in each category are named Lipper Leaders for Consistent Return and receive a score of 5, the next 20% receive a score of 4, the middle 20% are scored 3, the next 20% are scored 2 and the lowest 20% are scored 1. The highest Lipper Leader for Consistent Return in each category wins the Lipper Fund Award. Lipper Leader ratings change monthly. For more information, see lipperweb.com. Although Lipper makes reasonable efforts to ensure the accuracy and reliability of the data contained herein, the accuracy is not guaranteed by Lipper. Performance for the TD U.S. Monthly Income Fund C$ - Investor Series for the period ended July 31, 2019 is as follows: 8.9% (1 year), 7.3% (3 years), 9.6 % (5 years), N/A (10 years) and 10.6% (since inception on 09/13/2013). The corresponding Lipper Leader ratings of the fund for the same period are as follows: N/A (1 year), 5 (3 years), 5 (5 years), N/A (10 years). Performance for the TD Performance for the TD Tactical Monthly Income Fund – Investor Series for the period ended July 31, 2019 is as follows: 4.7% (1 year), 5.6% (3 years), 5.3% (5 years), N/A (10 years) and 7.0% (since inception on 09/12/2012). The corresponding Lipper Leader ratings of the fund for the same period are as follows: N/A (1 year), 5 (3 years), 4 (5 years), N/A (10 years).

About the Lipper Fund Awards
For more than 30 years and in over 20 countries worldwide, the highly-respected Lipper Fund Awards from Refinitiv have honored funds and fund management firms that have excelled in providing consistently strong risk-adjusted performance relative to their peers and focuses the investment world on top-funds. The merit of the winners is based on entirely quantitative criteria. This coupled with the unmatched depth of fund data, results in a unique level of prestige and ensures the award has lasting value. Renowned fund data and proprietary methodology is the foundation of this prestigious award qualification, recognizing excellence in fund management.  
The Lipper Fund Awards, granted annually, highlights funds and fund companies that have excelled in delivering consistently strong risk-adjusted performance relative to their peers. The Lipper Fund Awards are based on the Lipper Leader for Consistent Return rating, which is a risk-adjusted performance measure calculated over 36, 60 and 120 months. The fund with the highest Lipper Leader for Consistent Return (Effective Return) value in each eligible classification per award universe wins the Lipper Fund Award. For more information, see lipperfundawards.com. Although Lipper makes reasonable efforts to ensure the accuracy and reliability of the data contained herein, the accuracy is not guaranteed by Lipper.
 
About Refinitiv 
Refinitiv is one of the world’s largest providers of financial markets data and infrastructure, serving over 40,000 institutions in over 190 countries. It provides leading data and insights, trading platforms, and open data and technology platforms that connect a thriving global financial markets community – driving performance in trading, investment, wealth management, regulatory compliance, market data management, enterprise risk and fighting financial crime
 

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