It's RRSP time again so let's review the portfolio I created six years ago for these retirement accounts.
It was launched in February 2012 with an initial value of $25,031.92, with two main objectives: capital preservation and to earn a higher rate of return than you could get from a GIC.
The portfolio has about a 2- per-cent weighting in bonds and cash. The balance is in growth-oriented assets that offer exposure to the Canadian, U.S., and international equity markets. The portfolio contains a mix of ETFs, mutual funds, and limited partnerships so readers who wish to replicate it must have a self-directed RRSP with a brokerage firm.
These are the securities currently in the portfolio with some comments on how they have performed since the last review in August. Results are as of Feb. 14.
iShares DEX Short Term Corporate Universe + Maple Bond Index Fund (XSH). This is a short-term bond fund that invests in securities issued by Canadian companies or by foreign corporations in Canadian currency (the Maple Bonds). Short-term bond funds are defensive positions, so returns are low. Over the latest six-month period this fund lost 31 cents per unit in market value but we received about $0.28 in distributions, so we more or less broke even.
iShares Canadian Bond Index ETF (XBB). This ETF tracks the performance of the total Canadian bond universe including government and corporate issues. Bonds have been weak recently in the face of rising interest rates and this ETF is down 65 cents from our last review. We received distributions of about 45 cents per unit over the period, which still left us with a small overall loss.
TD High Yield Bond Fund I units (TDB626). This high-yield bond fund was added a year ago in an effort to boost returns from our fixed income holdings. It hasn't really delivered; in the latest six-month period the units were down 11 cents while we received 11.5 cents in distributions.
Fidelity Canadian Large Cap Fund B units (FID231). At one point this fund was a major contributor to the success of this portfolio but lately it has been blah. The unit value is down 33 cents since the last review and there was no December distribution in 2017 to compensate.
Beutel Goodman American Equity Fund D units (BTG774). At first glance, the latest results don't look so good. The unit value is off 27 cents since August. But offsetting that and more was a big year-end distribution of $1.1852 per unit, giving us an overall total return for the period of 6 per cent.
Trimark International Companies Fund, A units (AIM1733). This fund was added to the portfolio a year and a half ago. It got off to a slow start but has recovered well since, gaining 31 cents per unit in the latest six months. We did not receive any distributions.
Brookfield Renewable Energy Partners LP (BEP.UN). This Bermuda-based limited partnership owns a range of renewable power installations (mainly hydroelectric but also some wind) in North and South America. The share price dropped $2.54 in the latest period as rising interest rates negatively affected income-oriented securities. We received two distributions of 46.75 US cents per unit. As of the Feb. 27 payment, the quarterly distribution will increase to 49 US cents per unit.
Brookfield Infrastructure Partners LP (BIP.UN). This limited partnership invests in infrastructure projects around the world. It had been a very strong performer until now but in the last six months it came back to earth, losing $4.23 per unit. We received two distributions totaling 87 US cents, which did not begin to offset the drop in the price.
Interest. We invested $1,166.83 in an account with EQ Bank, which is paying 2.3 per cent. We received $13.42 for the period.
Here is how the RRSP Portfolio stood as of Feb. 14 (mutual fund prices are as of the close of trading on Feb. 13). Commissions have not been factored in and Canadian and U.S. currencies are treated at par for ease of tracking.
Comments: It was a difficult period for this portfolio. Bonds were soft, and our equity positions did not perform up to expectations. The total value of our holdings ended the period at $44,511.10, down $115.49 (0.0025 per cent) from the August review.
I never like to see any slippage in an RRSP. Fortunately, the loss was minimal and over the past full year the portfolio was ahead 6.3 per cent. In the six years since this portfolio was launched the annual gain is 10.07 per cent. That's still well in excess of our target.
Changes: It is hard to find a bond fund that is delivering positive results right now. But we need to search for a better return from the important fixed income segment of this portfolio. To that end, we will sell our position in XSH and invest the proceeds of $4,020.59 in the PIMCO Monthly Income ETF that trades on the TSX under the symbol PMIF. This fund invests in a portfolio of global bonds and has a very good record in comparison to its peer group. The management fee is 0.75 per cent and the closing price on Feb. 14 was $19.83. We will buy 200 units for a cost of $3,966. The balance of $54.59 will be added to our cash account.
We will also sell our position in the Fidelity Canadian Large Cap Fund, which has been an indifferent performer recently. The total of $8,397.31 will be invested in the Manulife Canadian Focused Fund (Advisor series). It is priced at $9.53 so we will buy 880 units for $8,386.40 and put the remaining $10.91 into the cash account.
This fund uses a disciplined bottom-up approach to create a portfolio that is about 50 per cent invested in Canada. About one-third of the assets are in U.S. stocks, with the rest scattered around amongst other countries. This fund has been an outstanding performer in recent years with a three-year average annual compound rate of return of 13.2 per cent. The MER is 2.29 per cent. If you have a fee-based account, use the F units, which have an MER of 1.2 per cent and a three-year return of 14.4 per cent. The code for the Advisor series is MMF4548. For the F class units, it is MMF4648.
We will also add 50 units to the Beutel Goodman American Equity Fund, for a cost of $751. This will use up our retained income in that account and we will take $39.88 from cash to make up the difference.
We will reinvest our cash balance of $988.20 in the EQ Bank account, which pays 2.3 per cent
Here is the revised portfolio. I'll review it again in August.
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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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