In September 2011 I created a Balanced Portfolio for income investors with the goal of combining above-average cash flow with reasonable risk. The initial portfolio valuation was $25,027.75, and the target was to achieve a return that at least matched the best available five-year GIC rate plus two percentage points.
The best five-year rate available at this time is 2.55 per cent, so we are looking for an annual return on this portfolio in excess of 4.55 per cent.
Here's a summary of how the securities we currently hold performed over the six months since I last reviewed this portfolio in October. Prices are as of the close of trading on April 13.
iShares Canadian Short Term Bond Index ETF (XSB-T). We added this ETF to the portfolio in November 2015. It is a defensive security, investing in short-term bonds with maturities of five years or less. Its purpose is to add stability and modest cash flow to the portfolio. The price is down 24 cents per unit in the past six months, but we received distributions of 31.88 cents per unit, so we ended up slightly ahead for the period.
iShares Canadian Universe Bond ETF (XBB-T). This ETF provides exposure to the full range of Canadian bonds, including government and corporate issues of all maturities. Bonds weakened during the latest six-month period, and this fund dropped in value by 67 cents per unit. We received distributions of 42.43 cents per unit, so the net result for the period was a small loss.
Fidelity Global Bond Fund (B units) (FID1225). I added this mutual fund to the portfolio in April 2016 to replace the CIBC Global Bond Fund, which was not performing to our standards. After a good start it faded in the latest period, losing 76 cents in unit value. We received 14.83 cents in distributions (to the end of January), so overall, we had a loss for the period.
Cineplex Inc. (CGX-T). Cineplex was added to this portfolio in September 2013, and was quite strong until recently. The shares reached a high of $53.41 in January but have now slipped back to $51.05, down 89 cents since the last review in October. However, we received 81 cents a share in dividends, so the loss in the latest period was very small.
Inter Pipeline (IPL-T). The price of this pipeline stock is almost unchanged from the time of our last review, with a small loss of 17 cents. That was more than offset by monthly dividends totalling 67.5 cents per share.
Brookfield Renewable Energy Limited Partnership (BEP.UN-T, BEP-N). This renewable energy limited partnership is another security that is almost unchanged since October, with the units up just 3 cents in value. However, we received a 5 per cent distribution increase effective with the February payment, bringing our total income for the six months to 91.25 (U.S.) per unit.
Brookfield Infrastructure Limited Partnership (BIP.UN-T, BIP-N). This is another Brookfield partnership but in this case the assets are infrastructure – everything from coal terminals and railways to power transmission lines. The units split three for two in September, meaning you received one extra unit for every two you owned previously. The price is up another $6.45 since October, and we received a distribution increase of 11.6 per cent in February. This continues to be the strongest performer in the portfolio.
BCE Inc. (BCE-T, BCE-N). Like many of the other securities in this portfolio, BCE shares showed very little movement in the latest six months. However, the dividend was increased by 5.1 per cent, to 71.74 cents per quarter, effective with the March payment.
Cash. We invested $853.65 in a high interest savings account with EQ Bank that was paying 2 per cent at the time. We earned interest of $8.54 for the period.
Here's how the portfolio stands now. Commissions have not been factored in. For simplicity, Canadian and U.S. dollars are treated as being at par for purposes of the calculations, although obviously, the dividends received from the two Brookfield partnerships are worth more in Canadian dollar terms.
Comments: The portfolio increased in value by $1,165.73 over the six months to a total of $41,427.08, including retained dividends/distributions. That was an advance of 2.9 per cent. Most of the profit came from dividends/distributions, with only the Brookfield Infrastructure Partnership showing any appreciable capital gain.
Since inception, the portfolio has gained 65.5 per cent, which equates to an average annual growth rate of 9.6 per cent. This continues to be well ahead of our target.
Changes: I'm not impressed with the performance of the Fidelity Global Bond Fund, but at present I cannot find anything better that provides exposure to international bonds. So we will stick with it for another six months, but if the performance doesn't improve, a switch will be required.
We do not have enough cash to buy 10 new shares of any of our securities, so we will leave the portfolio as it is for now. We'll keep the $1,536.93 invested in the EQ Bank high interest account that pays 2 per cent.
I'll revisit the portfolio in September.
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.