Investing hits and misses

Sorry about that, Gerry Coleman.

This column named you the fund manager of the decade a year ago, and look what happened. Your CI Harbour fund, a fund-industry thoroughbred for more than a decade, was on track in late December for a disappointing year.

Only fools judge mutual funds by one year's worth of returns. Investing columnists are another matter. They should be continually accountable, which is what this final 2010 edition of the Portfolio Strategy column is all about. Let's look back at some of the ideas presented in this space and check how they're working out.

A profile of Mr. Coleman led off the year and noted that CI Harbour had beaten both the average fund in the Canadian focused equity category and the S&P/TSX composite total return index (including dividends) over the previous decade. Today's updated 10-year numbers still look great, but the one-year 5.4-per-cent return to Nov. 30 ran well behind both the index's 16.3 per cent and the average peer fund's 9.3 per cent. Let's call this a chance to buy a quality fund at a low point.

Higher interest rates were widely anticipated early in 2010, so a mid-January column looked at how to manage the bonds in a portfolio. The basic message was to find the right percentage of bonds for your portfolio and stick to it. That worked out well as many of the most widely held bond funds had year-to-date returns of about 6 per cent as of late December.

Some additional thoughts on bonds from a year ago that are pertinent to the rising rate outlook for 2011: Short-term bonds (maturing in one through five years) and bond funds will fall less in price when rates move higher. The longer the term of the bonds or bond funds you hold, the more they can fall in price. Individual bonds do mature and pay your money back, however.

In March, this column labelled 2010 the year of the dividend. It wasn't. As of earlier this week, both the S&P/TSX Canadian Dividend Aristocrats and Dow Jones Canada Select Dividend Index had underperformed the S&P/TSX Composite Total Return Index. In other words, a pair of indexes constructed with blue-chip dividend payers lagged behind the much broader composite index.

Dividend stocks were far from a total loss, however. That March column presented six lists of dividend stocks, including one based on my own personal holdings that gained an average 13 per cent for the year through earlier this week. Add an average dividend yield of 2.8 per cent and you get a total return of close to 16 per cent.

The five stocks I chose were Cameco, Canadian National Railway, Fortis Inc., Rogers Communications and TransCanada Corp. All are dividend-growth stocks and all have bumped up their quarterly payouts in the past year or so.

A May column suggested investors do a risk assessment of their portfolios using an excellent website called RiskGrades.com. This free online tool is worth a visit any time to look up the risk scores for your individual stocks and exchange-traded funds (there's a full Canadian database) as well as your entire portfolio.

RiskGrades also shows how higher risk brings the potential for higher returns. The six stocks in the S&P/TSX 60 index with the highest RiskGrade scores averaged 38.6 per cent for the year to date, while the six lowest-risk stocks averaged 15 per cent. Just remember that higher-risk stocks will lead the market lower during the next correction.

The end of the income trust sector as we know it was the topic of a June column that introduced a new term coined by IncomeTrustResearch.com's Harry Levant - high-yield corporation. The pending 2011 introduction of a new tax on income trust distributions has prompted many trusts to convert into corporations paying a higher-yielding dividend flow than many blue-chip dividend stocks.

Mr. Levant offered up some names of trusts that were expected to pay the same amount of income in 2011 as they did before, and the average gain for the group on a year-to-date basis was 20.7 per cent. The average yield was 7.5 per cent, which encompasses a range of 4.5 per cent for Canadian Real Estate Investment Trust to 10.4 per cent for Medical Facilities Corp.

I thought the actively managed ETFs introduced this year by Horizons AlphaPro looked promising and said so in a column this year, but investors have not agreed for the most part. The Horizons AlphaPro Seasonal Rotation ETF (HAC) seems to have developed something of a following, but some other funds in the group have gone for days and days without a single trade.

Rather than track indexes like most exchange-traded funds, actively managed ETFs use a manager to pick stocks or bonds. The attraction here is the opportunity to have smart managers look after some of your money at a much lower cost than traditional mutual funds. Active ETFs are more expensive than their index-tracking cousins, though.

The sister firm to AlphaPro, Horizons BetaPro has a group of single inverse ETFs that aim to provide the mirror opposite return of a few different stock indexes. I noted in a column that these funds are effective for short-term use, but can act wonky if held for long periods.

A follow-up look at single inverse ETFs bears this out. The HBP S&P/TSX 60 Inverse ETF (HIX) lost 2.9 per cent over the past month while the S&P/TSX 60 index itself made 2.6 per cent. Year to date, the inverse ETF lost 13.7 per cent while the index made 10 per cent. Fees would account for a little of the discrepancy, but not a lot.

In closing, here's a nod to what could well be the most popular Portfolio Strategy column of the year. It looked at the Essentials Portfolio, my own name for a strategy devised by retired political science professor Mike Henderson to pick stocks in essential industries. The Essentials Portfolio has done well in the past 10 years and it clocked in with a total return of roughly 12.5 per cent for the year to date.

Looking Back

Here are some of the stocks that were highlighted in the Portfolio Strategy column this year, along with updated numbers on performance. You can find an archive of Portfolio Strategy columns going back to 2009 at http://tgam.ca/BPQJ

Rob Carrick's Dividend All Star Five-Pack

From: Reasons to declare 2010 the year of the dividend, March 6

Read the original column here

These are dividend-growth stocks that I own. I included them here because each of them has a long-term record of increasing dividends, and because each has come through in the past year or so with yet another hike.

High-Yield Corporations

From: Coming soon: the high-yield corporation, June 19

Read the original column here

A sampling of Income trusts and former trusts that are expected to sustain their distributions after the introduction of a new tax on trusts in 2011. Use globeinvestor.com to get the latest news on distributions and plans to convert into a corporate structure.

Least/Most Risky Stocks

From: These stocks will help your portfolio keep an even keel, May 15

Read the original column here

The website RiskGrades.com offers a no-cost risk analysis of stocks and ETFs traded on various exchanges, including the TSX. These stocks are drawn from the S&P/TSX 60 Index.

The Essentials Portfolio

From: The blazingly simple must-have portfolio, Nov. 20

Read the original column here

Retired political science professor Mike Henderson built this portfolio on the idea of investing in companies that provide essential services.