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I am a firm believer in having a balanced portfolio at all times, so I created this model Balanced Portfolio for readers of my Income Investor newsletter in September of 2011. The goals were to combine above-average cash flow with reasonable risk.

The initial 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.

That means the target has varied over time with the rise and fall of interest rates. Right now, the best five-year rate I can find is 3.25 per cent, so we are looking for an annual return on this portfolio in excess of 5.25 per cent.

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Here’s a summary of how the securities we currently hold performed over the six months since I last reviewed this portfolio in September. Prices are as of the close of trading on March 29.

iShares Canadian Short Term Bond Index ETF (XSB). This is a defensive ETF, 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 was down 18 cents per unit in the past six months but we received distributions of 38.24 cents per unit, so we ended up with a small net gain for the period.

iShares Canadian Universe Bond ETF (XBB). Surprise! Even with the general rise in interest rates, this bond ETF, which covers the entire Canadian fixed-income sector, managed a small gain in the latest six months. It was only 10 cents per unit, but in a period of weak bond prices we will take it. We also received monthly distributions of 52.2 cents per unit as a bonus.

iShares International Treasury Bond ETF (IGOV-Q). This ETF, invests in government bonds from around the world, except the U.S. More than 75 per cent of the holdings are rated A or higher so the credit quality is very good. We added this fund in September to diversify our bond holdings and to try to boost returns. It has done well for us so far, gaining $1.87 in the latest review period. The distributions are minimal however, with only 2.1 U.S. cents paid out in December.

Cineplex Inc. (TSX: CGX, OTC: CPXGF). Cineplex shares continue to struggle, losing $8.20 in the most recent period. The dividends are good, with monthly payments of 14 cents a share but the company itself is clearly having problems.

Inter Pipeline Ltd. (IPL). Interest-sensitive stocks have been under pressure in recent months and this company falls into that category. The shares are off $1.88 since the last review. One piece of good news: the monthly distribution was increased by half a cent in November to 14 cents per unit ($1.68 per year). The shares yield 7.5 per cent at the current price.

Brookfield Renewable Energy Limited Partnership (BEP.UN). This renewable energy limited partnership has traded in a narrow range in the past 18 months. In the latest period, the shares were down 98 cents, but we received two distributions, totaling 95.75 U.S. cents per unit. The distribution was increased by 4.8 per cent to 49 U.S. cents per quarter, effective in February.

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Brookfield Infrastructure Limited Partnership (BIP.UN). This is another Brookfield partnership but in this case the assets are infrastructure – everything from coal terminals and railways to power transmission lines. The price is up almost $1 since September and we received an 8 per cent distribution increase to US$0.47 per quarter.

BCE Inc. (BCE). BCE shares were down $2.23 in the latest six months. However, we recovered $143 of that in dividends so the overall loss was small.

Cash. We invested $2,025.19 in a high interest savings account with EQ Bank that paid 2.3 per cent. We earned interest of $23.29 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.

Income Investor Balance Portfolio (as of March 29)

SecurityWeight %Total sharesAvg. costBook valueMarket priceMarket valueCash retainedGain/loss %
XSB18.5250$28.45 $7,112.50 $27.31 $6,827.50 $122.66 -2.3
XBB11.6140$31.99 $4,484.30 $30.69 $4,296.60 $306.00 2.6
IGOV8.460$49.74 $2,984.40 $51.61 $3,096.60 $1.26 3.8
CGX9.3110$40.06 $4,406.70 $31.35 $3,448.50 $288.75 -15.2
IPL7.9130$19.05 $2,476.45 $22.36 $2,906.80 $302.05 29.6
BEP.UN13120$27.59 $3,310.90 $40.06 $4,807.20 $468.71 59.3
BIP.UN18.9130$20.02 $2,602.60 $53.53 $6,958.90 $429.86 183.9
BCE 11.375$44.20 $3,315.20 $55.44 $4,158.00 $465.54 39.5
Cash1.1$369.63 $392.92
Total100$31,062.68 $36,893.02 $2,384.83 26.4
Inception$25,027.75 56.9

Comments: This was not a good six months for this portfolio. The bond section held up quite well, but we were hurt by the heavy loss in Cineplex and smaller declines in Inter Pipeline and BCE. The end result was a 1.36-per-cent setback for the period.

That reduces the cumulative gain to date to 56.9 per cent. That works out to an annual compound growth rate of 7.18 per cent. That’s better than our target, but I am not happy with the recent results, so we are going to make some changes.

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Changes: We will sell our position in Cineplex. It offers a nice yield, but it has fallen out of favour with investors and recorded significant losses in the past year that have hurt our overall performance. Based on the current market value and retained earnings, we will realize a total of $3,737.25.

We will use the money to buy 270 units of Dream Global REIT (DRG.UN), which closed on March 29 at $13.75. The cost will be $3,712.50. The remaining $24.75 will go to our cash account.

This real estate investment trusts invests exclusively in commercial real estate properties located outside of Canada. To date, the focus has been entirely on Europe where the REIT owns approximately 20 million square feet of gross leasable area of office, industrial, and mixed-use properties across Germany, the Netherlands, Austria, and Belgium. The trust pays a monthly distribution of 6.66 cents (79.92 cents per year), which works out to a yield of 5.8 per cent at the current price. The chart shows a strong upward movement over the past years with the units trading at well above their 50- and 200-day moving averages.

As well, we will use some of our cash to add to existing positions as follows:

XBB – We will buy 10 units at a cost of $306.90. This will bring our position to 150 units. We will use all the retained earnings and take 90 cents from cash to cover the difference.

IPL – We have not lost faith in this pipeline company. We will buy 10 more shares for a cost of $223.60 in the hope of a turnaround in the price. That brings our total to 140 shares and reduces retained earnings to $78.45.

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BEP.UN – We will add 10 units for a cost of $400.60, bringing our total to 130. We will have cash remaining of $68.11.

The total cash balance of $1,582.65 will be left on deposit with EQ Bank at 2.3 per cent.

Here is a look at the revised portfolio. I will review it again in September.

Income Investor Balanced Portfolio (updated March 29)

SecurityWeight %Total sharesAvg. costBook valueMarket priceMarket valueCash retained
XSB17.9250$28.45 $7,112.50 $27.31 $6,827.50 $122.66
XBB12.1150$31.94 $4,791.20 $30.69 $4,603.50 $0.00
IGOV8.160$49.74 $2,984.40 $51.61 $3,096.60 $1.26
DRG.UN9.7270$13.75 $3,712.50 $13.75 $3,712.50 $0.00
IPL8.2140$19.29 $2,700.05 $22.36 $3,130.40 $78.45
BEP.UN13.7130$28.55 $3,711.50 $40.06 $5,207.80 $68.11
BIP.UN18.3130$20.02 $2,602.60 $53.53 $6,958.90 $429.86
BCE 10.975$44.20 $3,315.20 $55.44 $4,158.00 $465.54
Cash1.1$416.77 $416.77
Total100$31,346.72 $38,111.97 $1,165.88
Inception$25,027.75

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

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