I created an Aggressive TFSA Portfolio in March 2012 for readers of my Internet Wealth Builder newsletter who are seeking to maximize capital gains in a Tax-Free Savings Account. It invests exclusively in stock-based ETFs and is designed for readers who are willing to accept a higher degree of risk and volatility. This is not a model to use if you are saving for retirement, a child's future education, or any short-term goal.
Here's a look at the securities in the portfolio with some comments on how they have fared since our last review in March. Results are as of the afternoon of Sept. 21.
iShares Core S&P/TSX Capped Composite Index ETF (XIC-T). This ETF tracks the performance of the S&P/TSX Composite Index. The Index has been pretty much flat all year so it should come as no surprise that we only have a small gain in the unit value of 9 cents since the last review. We received two distributions (including the one due on Sept. 25) for a total of 36.4 cents.
iShares S&P/TSX Small Cap Index ETF (XCS-T).While the broad TSX has been flat, small cap stocks are in the red for 2017, with the S&P/TSX Small Cap Index down 4 per cent year to date. This ETF has reflected that decline, losing 49 cents per unit in the latest review period. The two quarterly distributions totalling 21.6 cents per unit (including the Sept. 25 payment) went only part way to making up the drop in the market price.
iShares U.S. Small Cap Index ETF (CAD-Hedged) (XSU-T). The Canadian small cap market may be a bust but things are going just fine in the U.S. The units gained $1.71 in the latest period and we received a June distribution of about 13.1 cents per unit. The net result was a gain of 6.3 per cent over the period.
iShares Core S&P 500 Index ETF (CAD-Hedged) (XSP-T). U.S. stocks continue to set new records and the performance of this ETF reflects the strength of the American market. The unit price is up $1.68 since the last review and we received a semi-annual distribution in June of 19.3 cents per unit.
BMO Nasdaq 100 Equity Hedged to CAD Index ETF (ZQQ-T). Nasdaq has been the top-performing North American index this year, thanks largely to the strength of the technology sector. This fund provides exposure to the top 100 stocks on the Nasdaq exchange. It was up $4.36 per unit in the latest period for a six-month gain of 10.6 per cent. Distributions are only paid annually, at year-end.
iShares MSCI EAFE Index ETF (CAD-Hedged) (XIN-T). The rally in international share prices continued in the latest period and XIN gained $1.09 per unit. Plus, we received a mid-year distribution of 33.19 cents per unit.
iShares MSCI Frontier 100 ETF (FM-N). This ETF tracks major companies in Third World countries from Nigeria to Vietnam. We went through a long drought in this frontier markets ETF. But the sector has been in rally mode for the past year and the units posted a gain of $3.21 (U.S.) in the latest period. We also received a mid-year distribution of 27.45 cents per unit. We are still down overall on this one but we're getting closer to break-even.
iShares MSCI Emerging Markets ETF (EEM-N). Emerging markets continue to rebound. The units posted a big gain of $5.89 (U.S.) in the latest six months plus we received a mid-year distribution of 19.17 cents per unit.
We received $4.65 in interest from the cash balance in our EQ Bank high-interest savings account.
Here's a look at how the portfolio stood on the afternoon of Sept. 21. The Canadian and U.S. dollars are treated at par and commissions are not taken into account. The percentage in the Gain/Loss column represents the cumulative return since the portfolio was launched or since the security was added. The initial book value was $20,002.30.
Comments: We had a decent gain of 6.2 per cent in the latest six-month period, despite the softness in the Canadian market, which represents about one-quarter of our holdings. Good returns from U.S. stocks and especially from emerging markets were among the positive forces.
Since the launch, the portfolio is ahead by 59.1 per cent. The average annual compound rate of return is 8.81 per cent. That is quite good but still well below the target rate of return that I originally set for this portfolio of 10-12 per cent.
In retrospect, that now looks too ambitious in view of the fact we are completely invested in ETFs, meaning we are simply tracking indexes and have no high-performance stocks to boost gains. Going forward, I suggest an 8-per-cent annual target is more realistic for this portfolio.
Changes: I see no reason to change any of the components of this portfolio at the present time. We will use retained income to make one small addition, as follows.
XSU – We will buy five units for a cost of $154.30. That will bring our total to 180 units and leave $1.41 in cash.
We will keep the cash invested at EQ Bank. The account now pays 2.3 per cent.
Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca.
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