In late November 2012 I launched a mini portfolio for small investors with limited resources in my Internet Wealth Builder newsletter. This was done in response to queries from two women with maturing GICs who were unhappy about the interest rate they would receive by reinvesting.
At the time, I explained that GICs were the best way to go if preservation of capital was the absolute number one priority. But by taking a little risk, I suggested they could improve their returns significantly by redeploying the money into a small portfolio of stocks and preferred shares or corporate bonds.
The portfolio I created including a telecommunications stock (BCE Inc.), a bank common stock (Scotiabank), and preferred shares from Laurentian Bank of Canada. The original book value was $14,984.55.
The Laurentian Bank preferreds were subsequently redeemed. In their place, I substituted the 5.75 per cent convertible debentures from Firm Capital Mortgage Investment Corporation. That move increased the book value of the portfolio to $15,018.80.
The portfolio was last reviewed in mid-February at which time it was showing an average annual compound rate of return of 11.7 per cent. Here is how the three securities have fared in the six months since then.
BCE Inc. (BCE)
The share price has shown little movement since the last update, when it was $47.03. At the time of preparing this update, BCE was trading at $48.26 so the stock is only up 2.6 per cent in the latest period. However, we received two dividends of $0.6175 each, which brings our total return over the six months to 5.2 per cent. That's not great but it's a lot better than a GIC.
Bank of Nova Scotia (BNS)
Scotiabank is one of the strongest Canadian financial institutions and has been the star performer in this portfolio. The stock was trading at $63.17 at the time of my February review; it has now jumped to $72.23 giving us a capital gain of 14.3 per cent in six months. In addition, we have received two dividends for a total of $1.28 per share.
Firm Capital Mortgage 5.75 per cent Convertible Debentures (FC.DB.A)
We bought these at $101.50 and they are now at $103.98 so we have a small capital gain. However, the real attraction of these convertibles is the high 5.75 per cent interest rate. We received a semi-annual interest payment of $28.75 for each $1,000 debenture in April.
We also received interest of $5.50 from the cash invested in a high-interest savings account at 1.35 per cent.
Here is how the Canadian Mini-Portfolio stood based on prices on the afternoon of Aug. 13.
Comments:
We now have about 21 months of history with our Mini Portfolio and it continues to do well. Since inception, the total return is 24.9 per cent while the average annual compound rate of return is 13.57 per cent. GICs? Who needs them?
Changes:
We'll invest some of our accumulated dividends in additional shares of BCE and BNS. We'll buy 10 more shares of BCE for a total price of $482.60, bringing our position to 130 shares. Also, we'll add five shares of BNS at a cost of $361.15 to bring our total to 95.
Note that I do not advise purchasing small numbers of shares if you have to pay a high brokerage commission. A cheap alternative is to enroll in corporate dividend reinvestment plans (DRIPS).
Here's a look at the revised portfolio.
U.S. portfolio
After my February update of the Canadian Mini-Portfolio I received a reader request for a U.S. dollar equivalent. Again the goal was to improve on the return from a certificate of deposit (CD, the American equivalent of a GIC) while keeping risk to a minimum.
In an attempt to simulate the Canadian portfolio, I chose a U.S. telecom stock, a big American bank, and a fixed-income ETF. Here are the securities with comments on how they have done in the almost six months since the portfolio was started. All figures are in U.S. dollars.
AT&T (T)
Like its Canadian equivalent, BCE Inc., this giant U.S. telecom has not been a very exciting performer. The shares are up a modest 4.1 per cent since the portfolio was launched, however the healthy dividend of $0.64 per quarter brings our total six-month return to 6.8 per cent.
Wells Fargo & Company (WFC)
Wells Fargo is now the largest bank in the U.S. and one of the best capitalized. The stock has done well since the portfolio launch with a capital gain of 9.5 per cent plus two dividends totalling $0.70 per share for a return of 11.1 per cent.
PIMCO Income Opportunity Fund (PKO)
Our fixed-income ETF just about broke even during the period. We received distributions of $1.14 per unit but that was largely offset by a capital loss of $0.88 per unit. The net result was a fractional gain of 0.9 per cent.
Here is how the portfolio looked on the afternoon of Aug. 13.
Comments:
Obviously the U.S. portfolio is not doing as well as the Canadian one. However, a 6.3 per cent return over six months is not bad considering the low-risk nature of the securities and is certainly much more than investors could earn from CDs.
I won't make any changes to the U.S. portfolio at this time. I'll review both again in six months.