Three years ago, in November 2012, I started a Canadian mini portfolio for people who don't have a lot of money to invest. The inspiration was e-mails from two readers. Their GICs had come up for renewal and they were dissatisfied with the rates being offered. My goal was to provide an alternative that would have the potential for better returns than those available from GICs, with limited risk.
Three years later, the rates being quoted for GICs are even lower than they were when the portfolio began. Royal Bank is offering only 1.5 per cent on a five-year term while the best five-year rate from a small institution is 2.5 per cent.
The mini portfolio that I created included three securities: the common stock of BCE Inc. and Scotiabank, plus preferred shares from Laurentian Bank of Canada. The original book value was $14,984.55.
The Laurentian Bank preferreds were subsequently redeemed. In their place, I substituted the 5.75 per cent convertible debentures from Firm Capital Mortgage Investment Corporation.
The portfolio was last reviewed in August, at which time it was showing an average annual compound rate of return of 8.4 per cent. Let's look at it again on its third anniversary, based on prices on the morning of Nov. 6.
BCE Inc. (BCE-T). BCE stock has bounced back after a tough summer and the share price is up $4.08 since our last review. We also received a dividend of $0.65 per share for a total return of 9 per cent in less than three months.
Bank of Nova Scotia (BNS-T). Scotiabank also recovered some lost ground during the period, gaining $3.07 per share. With a dividend of $0.70 added on, we're up 6.4 per cent for the latest period.
Firm Capital Mortgage 5.75 per cent Convertible Debentures (FC.DB.A-T). At the time of the last review these debentures were trading at$100.51 so they have lost a bit of ground. They pay interest at the rate of 5.75 per cent semi-annually, on April 30 and Oct. 31 so we received a semi-annual interest payment of $28.75 for each $1,000 debenture at the end of October. We have 55 shares for the equivalent of 5.5 debentures so that amounted to $158.13.
We also received interest of 42 cents from the cash invested in a high-interest savings account.
Here is how the Canadian Mini Portfolio stood on the morning of Nov. 6.
Comments: The total portfolio value, including retained income, is up 6.3 per cent from the last review, a nice move in a short time frame. Since inception, the portfolio has gained 32.7 per cent, which translates into an average annual compound rate of return of 9.9 per cent. That's a lot better than any GIC would have done over the same period.
We do not have enough cash to add to any of our positions at present so we will leave the portfolio intact for now and review it again in May. We'll keep our cash of $525.61 in a high-interest savings account paying 0.8 per cent.
Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters.