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In 2011, I set up a Balanced Portfolio for my Income Investor newsletter that offers a conservative mix of stocks, bonds and cash. This type of portfolio is likely to underperform when stock markets are strong but reduces risk when bear markets emerge.

That’s what we’ve seen here. The portfolio lost 14 per cent during the stock plunge in March, 2020, but that was a much better result than the overall market produced.

One reason for that was that in 2019, I increased the bond weighting to 42.5 per cent from 34.5 per cent. Bonds lost ground when the market fell, but they did much better than stocks.

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Since then, the portfolio has rebounded strongly, as we’ll see in a moment.

This portfolio was launched in September, 2011, with an initial valuation of $25,027.75. The goal was to achieve a return that at least matched the best available five-year GIC rate plus two percentage points.

That means the target varies with the rise and fall of interest rates. The best five-year rate I can find right now is 2.1 per cent from Oaken Financial, which would make our current target 4.1 per cent.

Here’s a summary of the securities we currently hold and how they performed over the period since last October, when I last reviewed this portfolio. Prices are as of the close of trading on April 23.

CI First Asset High Interest Savings ETF (CSAV-T). The fund invests in high-interest savings accounts at five Canadian banks – Canadian Imperial Bank of Commerce, Royal Bank of Canada, Bank of Montreal, Bank of Nova Scotia and National Bank of Canada – at above-average negotiated rates. The unit price hardly ever budges from a range between $50 and $50.10. We have received six monthly distributions since the last update in October, for a total of 14.9 cents a unit.

iShares Core Canadian Universe Bond Index ETF (XBB-T). This fund tracks the performance of the broad Canadian bond market. It’s been a bad stretch for bonds as yields on 10-year government issues have risen, knocking back prices. The units have lost $1.74 since the last update. We received monthly distributions totalling 41.9 cents a unit.

Canadian Apartment Properties REIT (CAR.UN-T). This REIT invests in apartment units across Canada. Most of the REIT sector was hit by panic selling when the pandemic took hold, as investors were concerned tenants would default on rent. CAR dropped to the $42 level in March, 2020, and was trading only a couple of dollars higher at the time of our October review. However, it has rebounded strongly in the most recent six months, gaining almost $11 a unit. We received monthly distributions totalling 69 cents a unit over the period.

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Pembina Pipeline Corp. (PPL-T). Any stock associated with the conventional energy sector was whipsawed last year. But we’re now seeing a recovery in the sector. Pembina’s price has gained $8.36 since the last review, helped by the company’s repeated insistence that it would maintain its monthly 21-cent dividend. It has done so, and the increase in the share price has pushed down the yield to 7.1 per cent, from 8.9 per cent at the time of the last review.

Brookfield Renewable Partners LP (BEP.UN-T). This renewable energy limited partnership split its units three-for-two in December, meaning you received an additional 50 units for every 100 you owned. We have adjusted the cost base to reflect the split. Due to timing, we received just one quarterly distribution during the review period.

Brookfield Infrastructure Partners LP (BIP.UN-T). This Brookfield partnership invests in infrastructure projects worldwide: railways; ports; transmission lines; toll roads; etc. It continues to perform well, with the units advancing about $6 in the latest six months. Both BEP and BIP recently increased their distributions by 5 per cent.

BCE Inc. (BCE-T). We added Canada’s largest telecom company to the portfolio last October at $56.20 a share. Since then, the stock is up $1.93, and we received two dividends for a total of $1.708 a share. Total gain for the six months was 6.5 per cent.

Bank of Montreal (BMO-T). The financial sector was hit hard by last year’s March sell-off but has recovered strongly. BMO shares are up almost $32 in the latest six-month period, and we are receiving quarterly dividends of $1.06 a share. At the sharply higher price, the yield is down to 3.7 per cent from 6.8 per cent last fall.

Cash. We invested $2,165.22 in a high-interest savings account with Motive Financial that was paying 1.55 per cent at the time. We earned interest of $16.78 for the period.

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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.

Investor Income Balanced Portfolio (as of April 23)

SecurityWeight % Total sharesAvg. costBook valueMarket priceMarket valueRetained incomeGain/loss %
CSAV-T18.4185$50.06 $9,261.10 $50.02 $9,253.70 $67.72 0.07
XBB-T15.7250$32.04 $8,010.20 $31.61 $7,902.50 $339.50 2.9
CAR-UN-T8.880$49.69 $3,975.20 $55.30 $4,424.00 $220.80 18.7
PPL-T5.980$47.49 $3,799.50 $36.91 $2,952.80 $100.80 -19.6
BEP-UN-T21.3210$11.98 $2,516.10 $50.90 $10,689.00 $90.78 328.4
BIP-UN-T1290$16.58 $1,492.30 $67.10 $6,039.00 $568.00 342.7
BCE-T6.960$56.20 $3,372.00 $58.13 $3,487.80 $102.48 6.5
BMO-T9.240$108.26 $4,330.40 $116.01 $4,640.40 $412.80 16.7
Cash1.8$873.33 $890.11
Total100$37,630.13 $50,279.31 $1,902.88 38.7
Inception$25,027.75 108.5

Comments: The stock markets were strong during the latest period, and our portfolio reflected that, gaining 9.6 per cent in six months. This was despite having about one-fifth of the portfolio sitting in a cash exchange-traded fund at the start of the period and another 18 per cent in a bond fund.

The cumulative gain since inception a little more than 9½ years is 108.5 per cent. That works out to an average annual compound growth rate of 7.87 per cent. That’s well above target.

Changes: The portfolio is performing well, but it is still too heavily weighted to Brookfield Renewable Partners. Therefore, we will sell 50 units of BEP.UN for a total of $2,545.

We will use the money to buy shares in Fortis Inc. (FTS-T), adding a utility stock to this portfolio. Fortis closed on April 23 at $55.37, so we will buy 45 shares for a total cost of $2,491.65. We will add the balance of $53.35 to our cash account.

Fortis is based in St. John’s but operates in the United States as well as Canada. It’s a stable company and should outperform if there is a stock market correction. The shares pay a quarterly dividend of 50.5 cents ($2.02 a year) to yield 3.6 per cent at the current price.

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I’m not content with the performance of CSAV. It’s safe, but the return is miniscule. We need a somewhat better performance from this money, but we also need to retain an appropriate cash/fixed income ratio in the portfolio.

Accordingly, we will sell our units in CSAV for $9,253.70. Add retained earnings of $67.72, and we have $9,321.42 to invest.

We’ll put $5,000 into a one-year GIC with Peoples Bank, paying 1.55 per cent at maturity on April 23, 2022. That’s not a great return, but it’s better than CSAV is providing.

We’ll use the rest to buy 230 units of the iShares Convertible Bond Index ETF (CVD-T). It’s one of the few bond ETFs in the black this year, with a year-to-date gain of 3.74 per cent. The units are trading at $18.59, for an investment of $4,275.70.

That leaves $45.72, which we’ll add to cash.

In addition, we’ll use retained income to add to our existing position in XBB. We will buy another 10 units at a cost of $316.10, bringing our position to 260 units. That will leave retained earnings of $23.40.

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All else remains the same.

We now have a cash balance of $2,508.24, which will continue to be invested with Motive Financial’s Savvy Savings Account. The rate has dropped to 1.25 per cent.

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

Income Investor Balanced Portfolio (revised April 23)

SecurityWeight %Total sharesAvg. costBook valueMarket priceMarket valueRetained income
GIC9.91$5,000.00 $5,000.00 $5,000.00 $5,000.00 $0
CVD-T8.4230$18.59 $4,275.70 $18.59 $4,275.70 $0
XBB-T16.2260$32.02 $8,326.30 $31.61 $8,218.60 $23.40
CAR-UN-T8.780$49.69 $3,975.20 $55.30 $4,424.00 $220.80
PPL-T5.880$47.49 $3,799.50 $36.91 $2,952.80 $100.80
BEP-UN-T16.1160$11.98 $1,916.18 $50.90 $8.144.00$90.78
BIP-UN-T11.990$16.58 $1,492.30 $67.10 $6,039.00 $568.00
BCE-T6.960$56.20 $3,372.00 $58.13 $3,487.80 $102.48
BMO-T9.240$108.26 $4,330.40 $116.01 $4,640.40 $412.80
FTS-T4.945$55.37 $2,491.65 $55.37 $2,491.65 $0
Cash2$989.18 $989.18
Total100$39,968.41 $50,663.13 $1,519.06

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