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portfolio strategy

Got two minutes? You can beat the market Add to ...

The TMP is very far from a sure thing, though. Morningstar’s back-testing shows the S&P/TSX composite index has performed better in 10 of the past 27 years. The TMP’s returns are better over the past one-, three- and five-year periods, and since inception in 1986. However, the index outperformed it over the past 10 years by a margin of 9.2 per cent to 8.9 per cent.

The TMP has also had a couple of serious losing streaks in its competition with the index. There were three consecutive years of underperformance versus the index in the late 1980s, and four consecutive years in the mid-2000s leading up to the financial crisis. A word of warning: When the Canadian stock market blasts off next time, the TMP is almost certain to fall behind.

There’s also a little bit of maintenance required for the TMP, whereas an ETF tracking the Canadian market can be put on auto-pilot. At the beginning of each year, the TMP must be adjusted so that the portfolio reflects the latest market cap leaders. On average over the years, three buy and three sell transactions have been required to do this.

In addition, you will have to return the portfolio to equal weighting by selling some of the high flyers and buying more of the losers that are being retained. Let’s assume the annual total number of stock trades required to maintain the portfolio is 20 (that’s also the number needed to set it up initially). At $10 per trade at an online broker, you’ve got a total annual cost of $200. On a $100,000 portfolio, this will reduce your returns by 0.2 per cent.

There are ETFs with fees that are lower, but they’re index trackers. The Two-Minute Portfolio has shown the ability to do better than that over the long term.

The Two-Minute Portfolio, Then And Now

Here's the 2012 version of the portfolio, which is built on the two largest dividend-paying stocks by market capitalization in each of the 10 TSX sectors:

Company

Symbol

Market Cap

($-mil)

at Dec. 31

2012

Total

% Return

Energy

   

Suncor Energy Inc.

SU-T

50,099

13.0%

Cdn. Natural Resources

CNQ-T

31,347

-23.8%

    

Materials

   

Barrick Gold Corp

ABX-T

34,856

-22.9%

Goldcorp

G-T

29,675

-17.9%

    

Industrials

   

Cdn. National Railway

CNR-T

38,821

14.6%

Cdn Pacific Railway Ltd

CP-T

17,493

48.2%

    

Consumer Discretionary

Thomson Reuters Corp

TRI-T

23,786

10.4%

Shaw Communications

SJR.B-T

10,175

17.5%

    

Consumer Staples

Loblaw Cos.

L-T

11,808

11.2%

Shoppers Drug Mart

SC-T

8,782

6.6%

    

Health Care

   

CML Healthcare Inc.

CLC-T

597

-23.4%

Nordion Inc.

NDN-T

401

-21.8%

    

Financial

   

Royal Bank of Canada

RY-T

86,548

19.6%

Toronto-Dominion Bank

TD-T

76,907

13.6%

    

Information Technology

MacDonald, Dettwiler

MDA-T

1,783

21.6%

Constellation Software

CSU-T

2,543

61.6%

    

Telecommunications Services

BCE Inc.

BCE-T

33,047

5.6%

Rogers Communications

RCI.B-T

23,269

19.1%

    

Utilities

   

Cdn. Utilities Ltd.

CU-T

9,213

19.8%

Fortis Inc.

FTS-T

7,111

6.1%

    

Total Portfolio

  

10.3%

    

Source: Morningstar Canada



Here's the 2013 version of the portfolio:
 

Company

Symbol

Market Cap

($-mil)

at Dec. 31

Dividend

Yield (%)

Energy

   

Suncor Energy Inc.

SU-T

50,099

1.6%

Imperial Oil Limited

IMO-T

36,218

1.1%

    

Materials

   

Potash Corp. of Sask.

POT-T

34,938

2.0%

Barrick Gold Corp

ABX-T

34,856

2.3%

    

Industrials

   

Cdn. National Railway

CNR-T

38,821

1.6%

Cdn Pacific Railway Ltd

CP-T

17,493

1.3%

    

Consumer Discretionary

Thomson Reuters Corp

TRI-T

23,786

4.3%

Magna Intl. Inc.

MG-T

11,569

2.1%

    

Consumer Staples

Loblaw Companies Ltd.

L-T

11,808

2.2%

Saputo Inc.

SAP-T

9,899

1.7%

    

Health Care

   

Extendicare Inc.

EXE-T

657

10.5%

CML Healthcare Inc.

CLC-T

597

11.1%

    

Financials

   

Royal Bank of Canada

RY-T

86,548

3.9%

Toronto-Dominion Bank

TD-T

76,907

3.8%

    

Information Technology

Constellation Software

CSU-T

2,543

3.3%

MacDonald, Dettwiler

MDA-T

1,783

2.1%

    

Telecommunications Services

BCE Inc.

BCE-T

33,047

5.4%

Rogers Communicat.,B

RCI.B-T

23,269

3.5%

    

Utilities

   

Cdn. Utilities Ltd., A

CU-T

9,213

2.4%

Fortis Inc.

FTS-T

7,111

3.6%

    

Total Portfolio

  

3.5%

    

Source: Morningstar Canada



Download the complete Two-Minute Portfolio data package, including historical returns year by year, as a pdf here.
 

For more personal finance coverage, follow me on Twitter (@rcarrick) and Facebook (Rob Carrick).

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