TD Active Global Income ETF: A Steady Hand in a Rising Rate World?

The TD Active Global Income ETF (TGFI.TO) recently declared a June 2025 dividend of CAD 0.09 per unit, maintaining its focus on income generation despite a challenging macroeconomic backdrop. With a three-year average dividend growth rate of 19.22%, this ETF has carved out a reputation as a yield-driven investment vehicle. But how sustainable is this dividend in a rising rate environment, and what does its portfolio allocation mean for income-seeking investors? Let's dissect the numbers and the strategy behind them.

Dividend History: Growth Amid Volatility

The ETF's dividend history reveals a mix of resilience and adjustment. From 2023 to early 2024, distributions were steady at CAD 0.10 per month, but a 10% reduction to CAD 0.09 in January 2025 underscores management's caution in the face of shifting market conditions. While the 19.22% three-year growth rate reflects an upward trajectory, it's critical to note that this figure includes a 276% spike in early 2023, followed by a subsequent drop to CAD 0.10. This volatility highlights the ETF's active management approach—prioritizing sustainability over short-term gains.

The forward yield of 5.33% (as of June 2025) remains compelling, particularly in a world where traditional fixed-income instruments offer paltry returns. This yield, paired with a low management expense ratio (MER of 0.40%)—below many peers—positions TGFI as a cost-effective income generator.

Portfolio Allocations: Navigating Rate Hikes

TGFI's strategy hinges on a diversified mix of global bonds, preferred shares, and other income-generating assets. This allocation is both its strength and its vulnerability in a rising rate environment:

1. Bonds: Rising rates typically depress bond prices, but the ETF's active management allows it to pivot toward shorter-duration bonds or sectors less sensitive to rate fluctuations (e.g., floating-rate instruments).
2. Preferred Shares: These hybrid securities often outperform during rate hikes due to their equity-like features and higher yields. However, their prices can dip if broader market sentiment turns sour.
3. Global Diversification: Exposure to non-Canadian markets mitigates domestic rate risks, though currency fluctuations and geopolitical risks add layers of complexity.

Why This ETF Might Outperform

Critics may argue that rising rates will erode bond-heavy portfolios, but TGFI's track record suggests adaptability. Over the past decade, it has navigated multiple rate cycles by:
- Trimming duration risk during hikes.
- Increasing exposure to floating-rate notes, which benefit from higher rates.
- Favoring preferred shares with embedded call options, allowing issuers to refinance debt at lower rates.

The ETF's low correlation to equity markets (historically around 0.3–0.5) also makes it a stabilizer in a diversified portfolio.

Risks and Considerations

No investment is without risks. Key concerns include:
- Interest Rate Sensitivity: A prolonged rate hike cycle could pressure bond and preferred share prices.
- Currency Risk: Global exposure may amplify losses if the Canadian dollar strengthens.
- Dividend Volatility: The January 2025 cut reminds investors that payouts are not guaranteed.

The Bottom Line: A Balanced Play for Yield Seekers

TGFI.TO is not a “set it and forget it” investment, but its blend of active management, global diversification, and a disciplined focus on income makes it a viable option for those seeking yield in a low-return world. The 5.33% forward yield and 19.22% three-year dividend growth (adjusted for 2025's dip) suggest management's commitment to sustainable payouts.

For conservative investors, pairing TGFI with shorter-term bonds or dividend-paying equities could create a balanced income stream. Meanwhile, its low MER ensures that more of your returns stay in your pocket.

In a rising rate environment, patience and diversification are key. TGFI's track record suggests it can navigate these headwinds—but investors must remain vigilant to shifts in its portfolio strategy and dividend trajectory.

Investors should consult the ETF's prospectus and performance data for comprehensive insights before making decisions.