TD Bank 2014 Annual Report Download - page 194

TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS192
INVESTMENT STRATEGY AND ASSET ALLOCATION
The primary objective of the Society and the TDPP is to achieve an
annualized real rate of return of 1.50% and 1.75%, respectively, over
rolling ten-year periods. The investment policies for the principal
pension plans are detailed as follows and exclude Pension Enhancement
Account (PEA) assets which are invested at the member’s discretion in
certain mutual funds. The investment policies and asset allocations by
asset category for the principal pension plans (excluding PEA assets)
are as follows:
Plan Asset Allocation
(millions of Canadian dollars, except as noted)
Society
1
TDPP
1
Acceptable % of Fair Value Acceptable % of Fair Value
As at October 31, 2014 Range Total Quoted Unquoted Range Total Quoted Unquoted
Debt 58-72% 60% $ – $ 2,489 44-56% 50% $ – $ 277
Equity 24-34.5 32 1,228 84 44-56 50 – 280
Cash equivalents 0-4 2 – 93 n/a n/a n/a n/a
Alternative investments1 0-12.5 6 40 188 n/a n/a n/a n/a
Other2 n/a n/a – 101 n/a n/a – 25
Total 100% $ 1,268 $ 2,955 100% $ – $ 582
As at October 31, 2013
Debt 58-72% 58% $ – $ 2,094 44-56% 49 % $ – $ 199
Equity 24-34.5 34 1,086 138 44-56 51 – 208
Cash equivalents 0-4 2 – 79 n/a n/a n/a n/a
Alternative investments1 0-12.5 6 37 162 n/a n/a n/a n/a
Other2 n/a n/a – 157 n/a n/a – 17
Total 100% $ 1,123 $ 2,630 100% $ – $ 424
As at October 31, 2012
Debt 57-71% 60% $ – $ 1,995 44-56% 50% $ – $ 165
Equity 25-35.5 31 917 118 44-56 50 – 168
Cash equivalents 0-4 3 – 114 n/a n/a n/a n/a
Alternative investments1 0-12.5 6 27 167 n/a n/a n/a n/a
Other2 n/a n/a – 63 n/a n/a – 9
Total 100% $ 944 $ 2,457 100% $ – $ 342
Society Investment Strategy
The investments of the Society are managed with the primary objective
of providing reasonable and stable rates of return, consistent with
available market opportunities, prudent portfolio management, and
levels of risk commensurate with the return expectations and asset
mix policy as set out by the risk budget of 9% surplus volatility.
Debt instruments generally must meet or exceed a credit rating of
BBB at the time of purchase and during the holding period, except for
the portion of the debt portfolio managed to the Financial Times Stock
Exchange (FTSE) TMX Canada Universe Bond Index (formerly known as
the DEX Universe Bond Index), which can invest in bonds with a credit
rating below BBB. There are no limitations on the maximum amount
allocated to each credit rating above BBB for the total debt portfolio.
The bond mandate managed to the FTSE TMX Canada Universe Bond
Index, representing 10% to 29% of the total fund, may be invested
in bonds with a credit rating below BBB-. Within this mandate, the
following limitations apply: debt instruments rated BBB+ or lower must
not exceed 25%; debt instruments rated below BBB- must not exceed
10%; debt instruments of non-government entities must not exceed
80%; debt instruments of non-Canadian government entities must not
exceed 20%; and debt instruments of a single non-government or
non-Canadian government entity must not exceed 10%. In addition,
debt instruments issued by the Government of Canada, provinces of
Canada, or municipalities must not exceed 100%, 75%, or 10% of
this mandate, respectively. Asset-backed securities must have a mini-
mum credit rating of AAA and those rated AAA must not exceed 25%
of this mandate. The remainder of the debt portfolio is not permitted
to invest in debt instruments of non-government entities.
The equity portfolio is broadly diversified primarily across medium
to large capitalization quality companies and income trusts with no
individual holding exceeding 10% of the equity portfolio or 10% of
the outstanding securities of any one company at any time. Foreign
equities are also included to further diversify the portfolio. A maximum
of 5% of the total fund may be invested in emerging market equities.
Alternative investments include hedge funds and private equities.
Derivatives can be utilized provided they are not used for speculative
purposes or to create financial leverage for the Society. The Society
may invest in hedge funds, which may employ leverage when executing
their investment strategy.
The Society was in compliance with its investment policy throughout
the year.
TDPP Investment Strategy
The investments of the TDPP are managed with the primary objective
of providing reasonable and stable rates of return, consistent with
available market opportunities, prudent portfolio management, and
levels of risk commensurate with the return expectations and asset mix
policy as set out by the risk budget of 22% surplus volatility.
The TDPP is not permitted to invest in debt instruments of non-
government entities. Debt instruments generally must meet or exceed
a credit rating of BBB at the time of purchase and during the holding
period. There are no limitations on the maximum amount allocated to
each credit rating above BBB for the total debt portfolio.
1
The Society’s alternative investments primarily include private equity funds, of
which a fair value of nil in 2014 (2013 – $1 million; 2012 – $1 million) is invested
in the Bank and its affiliates. The principal pension plans also invest in investment
vehicles which may hold shares or debt issued by the Bank.
2
Consists mainly of PEA assets, interest and dividends receivable, and amounts due
to and due from brokers for securities traded but not yet settled.