I created this Conservative Portfolio in September 2011 for investors who are willing to accept reduced returns in exchange for lower risk. The goal is to preserve capital while earning a target return of two percentage points more than the yield on a five-year GIC from the major banks. The current RBC five-year rate is 1.6 per cent so we are aiming for gains of 3.6 per cent per year.
Here is a look at the securities we hold with some comments on how they performed since my last update in mid-October. Prices are as of the afternoon of April 13 except for the PIMCO fund, which is at the close of trading on April 12.
iShares Canadian Short Term Bond Index ETF (XSB-T). This short-term bond ETF was added to the portfolio in April 2016. It provides regular monthly cash flow of about 5.3 cents per unit and is very low risk. However, it won't provide much of a return. It's strictly a defensive holding.
iShares Core Canadian Short Term Corporate + Maple Bond Index ETF (XSH-T). This is another short-term ETF. It was added to the portfolio in the fall of 2013 to provide some exposure to Maple Bonds, which are Canadian-dollar bonds from foreign issuers such as Bank of America, JPMorgan Chase, and Goldman Sachs. The unit price is down by a nickel since the last review in October, but we received monthly distributions totalling about 29 cents during the period so we came out slightly ahead.
iShares Canadian Universe Bond Index ETF (XBB-T). We added this ETF to the portfolio in September 2015 when it was trading at $31.37. Bonds have been weak in recent months and the units are down $0.44 since the October review. However, we received distributions of 42.43 cents per unit so we just about broke even for the period.
PIMCO Monthly Income Fund (PMO005). We added this global fixed-income mutual fund in October 2013. It offers monthly cash flow, currently about 4 cents per unit, plus a year-end capital gains payment, which was about 40 cents in 2016. Since the last review, the unit value lost 17 cents in value but we received distributions totalling about $0.65 per unit.
BCE Inc. (BCE-T, BCE-N). BCE shares were virtually flat over the latest six months, with a small gain of just 47 cents. However, the company announced a 5-per-cent dividend increase effective in March, bringing the quarterly payment to 71.74 cents per share ($2.87 per year).
Enbridge Inc. (ENB-T, ENB-N). Enbridge has been a strong performer for us, but the shares faltered a bit in the latest period, losing $1.64 in value. On the good news side, the company increased its dividend by 10 per cent to 58.3 cents per quarter ($2.332 per year).
Brookfield Infrastructure Limited Partnership (BIP.UN-T, BIP-N). This Bermuda-based limited partnership keeps powering ahead. At the time of the last review, I reported a three for two split that increased our total position to 53 units. The shares have continued to move higher since and are up $7.34 since October. As well, the partnership implemented an 11.6-per-cent distribution hike in February, bringing the quarterly payment to 43.5 cents U.S. ($1.74 per year). This is by far the top performer in the portfolio with a gain of over 185 per cent.
We received interest of $7.65 on the cash invested at 2 per cent in a high-interest savings account at EQ Bank.
Following is a summary of where we stood on the afternoon of April 13. The initial book value of the portfolio was $10,000. At the time of my last review the value of the portfolio, including dividends/distributions, was $14,679.06. Brokerage commissions are not factored in and the Canadian and U.S. dollars are treated as being at par for ease of calculation. (This only affects one security, as the distributions from BIP.UN are paid in U.S. dollars.)
IWB Conservative Portfolio (as of April 13)
|Security||Weight %||Total shares||Avg. cost/share||Book value||Current price||Market value||Retained income||Gain/Loss %|
Comments: The portfolio gained 3.9 per cent in the latest period, thanks mainly to the price surge in the units of the Brookfield LP. The rest of the portfolio was more or less flat.
Since inception, our total cumulative return is now 52.5 per cent, which works out to an average annual compound growth rate of 7.82 per cent, more than double our target. The value of the portfolio at this point is $15,246.36.
Changes: We will not make any basic changes in our mix, however we will spend a little of our cash as follows:
ENB – While the price is down, we will add five shares to our position, bringing the total to 35. The cost is $281.10. We will used our retained income of $265.60 and take the balance of $15.50 from the cash account.
BIP.UN – We will increase our total to 55 units by purchasing two more for a cost of $104.22. That will leave $36.43 in retained income.
Readers are reminded not to do small trades in a personal account unless it is fee-based. Use dividend reinvestment plans where available.
Here is the revised portfolio. We will keep the cash balance of $657.11 invested in EQ Bank, which pays 2 per cent. I will review it again on its sixth anniversary in September.
IWB Conservative Portfolio (revised April 13)
|Security||Weight %||Total shares||Avg. cost/share||Book value||Current price||Market value||Retained income|
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. Follow Gordon Pape on Twitter at twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney