6.1%
BALANCED PORTFOLIO REBOUNDS
By Gordon Pape, Editor and Publisher
From the time I first started in this business, some 40 years ago, most financial advisors suggested a 60%/40% stock/bond split for a conservative balanced portfolio.
So, when it came time to structure a model balanced portfolio for our readers to track, it was only natural we should use that asset allocation. It all went well until two years ago. That’s when the Bank of Canada joined other central banks to aggressively raise interest rates in an effort to subdue inflation. The interest-sensitive securities in this portfolio – bonds and dividend paying stocks – were hit hard. The portfolio valuation began to fall, and the downturn accelerated.
But finally, there is light at the end of the tunnel. Rates have stabilized, and we may start to see some declines later this year. The portfolio staged a strong recovery in the six-month period from October to April, and more upside potential appears likely in the coming months.
This portfolio was launched in September 2011. It offers a conservative mix of stocks, fixed-income securities, and cash. Normally, this type of portfolio tends to underperform when stock markets are strong but reduces risk when bear markets emerge.
The portfolio had 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 5.15%, which would make our current target 7.15%.
Here’s a summary of the securities we currently hold and how they performed over the period since I last reviewed this portfolio in October. Prices are as of the close of trading on April 19.
GIC 1. We invested $10,000 in a one-year GIC from Saven Financial to protect some fixed-income assets from falling bond prices. It paid 5.15% and matured on April 21.
GIC 2. We invested another $3,396.70 in a six-month GIC with EQ Bank that paid 5%. It also matured over the weekend. We received $84.92 in interest.
iShares Core Canadian Universe Bond Index ETF (TSX: XBB). After two years, we’re finally seeing some life in the bond market, although the gains are still weak. The units are up $0.97 since the last review, and we received monthly distributions that totaled $0.445 per unit.
iShares U.S. IG Corporate Bond Index ETF (CDN-hedged) (TSX: XIG). This corporate bond fund posted a modest gain as the price rose by $0.98. The monthly distributions totaled $0.56.
Canadian Apartment Properties REIT (TSX: CAR.UN). This REIT invests in apartment units across Canada. Most REITs have been hurt by rising interest rates, but now we’re seeing the first signs of a turnaround. This REIT gained a modest $0.42 in the latest period but, hey, at least it was on the plus side. We received six monthly distributions totaling $0.726 per unit.
Pembina Pipeline Corp. (TSX: PPL, NYSE: PBA). We saw a nice rebound in the latest period, with the shares up $6.06. We received two quarterly payments for a total per share cash flow of $1.335.
Brookfield Renewable Partners (TSX: BEP.UN, NYSE: BEP). The units of this green energy partnership with worldwide assets continue to be weak, with the price down $12.86 since the last review. We received two quarterly distributions for a total of US$0.6375 per unit.
Brookfield Infrastructure Limited Partnership (TSX: BIP.UN, NYSE: BIP). This Brookfield partnership invests in infrastructure projects worldwide: railroads; ports; transmission lines; toll roads; etc. After a slump in 2022, the units staged a short-lived recovery early in 2023 but then nosedived. That was followed by another turnaround, which started in late October. The quarterly distribution was increased to US$0.405 per unit, effective with the February payment.
BCE Inc. (TSX, NYSE: BCE). We added Canada’s largest telecom company to the portfolio in the fall of 2020 at $56.20 per share. The shares went as high as $74.09 before going into a deep dive, which continues. The stock pays a dividend of $0.9975 per quarter.
Bank of Montreal (TSX, NYSE: BMO). The financial sector was hurt by recession fears, but that concern has now faded, and prices are rising again. BMO shares gained $20.46 during the latest period. The bank raised its quarterly dividend by 2.7%, to $1.51, effective with the January payment.
Fortis Inc. (TSX, NYSE: FTS). This St. John’s-based utility has experienced the same downdraft as most interest-sensitive securities, although we now appear to be seeing some stabilization. The stock lost $0.65 per share in the latest period, but that was more than offset by two dividends totaling $1.18.
Cash. We invested our cash balance of $2,992.65, including retained earnings, in a promotional CIBC account, which offered 5.6%. We earned $83.79.
Here’s how the portfolio stands now. Commissions have not been factored in.
Income Investor Balanced Portfolio (a/o April 20/24)
Security | Weight
% |
Total
Shares |
Average
Cost |
Book
Value |
Market
Price |
Market
Value |
Retained
Income |
Gain/
Loss % |
GIC Apr.21/24 | 20.3 | 1 | $10,000.00 | $10,000.00 | $10,000.00 | $10,000.00 | $515.00 | +5.15 |
GIC Apr.20/24 | 6.9 | 1 | $3,396.70 | $3,396.70 | $3,396.70 | $3,396.70 | $84.92 | +2.5% |
XBB | 11.0 | 200 | $28.00 | $5,600.00 | $27.13 | $5,428.00 | $188.00 | +0.03 |
XIG | 7.5 | 190 | $20.38 | $3,872.20 | $19.40 | $3,686.00 | $185.81 | 0.0 |
CAR.UN | 7.8 | 90 | $48.87 | $4,398.10 | $42.67 | $3,840.30 | $151.95 | -9.2 |
PPL | 8.8 | 90 | $47.13 | $4,242.00 | $47.98 | $4,318.20 | $306.00 | +9.0 |
BIP.UN | 12.3 | 155 | $15.53 | $2,407.70 | $39.41 | $6,108.55 | $405.41 | +170.5 |
BCE | 6.4 | 70 | $55.41 | $3,878.80 | $44.80 | $3.136.00 | $405.38 | +47.3 |
BMO | 11.5 | 45 | $109.85 | $4,943.20 | $126.75 | $5,703.75 | $480.70 | +25.1 |
FTS | 4.9 | 45 | $55.37 | $2,491.65 | $53.54 | $2,409.30 | $296.55 | +8.6 |
Cash | 2.6 | $1,205.76 | $1,289.55 | |||||
Total | 100.0 | $43,675.81 | $49,316.35 | $3,019.72 | +18.7 | |||
Inception | $25,027.75 | +106.7 |
Comments: After almost two years of being battered by rising rates, this portfolio appears to be turning a corner. The portfolio is now valued at $52,336.07, up 8.2% since the last review in October.
The cumulative gain since inception 12 1/2 years ago is 106.7%. That works out to an average annual compound growth rate of 6.08%. That’s lagging our goal, but it is still better than the best five-year GIC rate.
Changes: We have maturing GICs with a total value of $13,996.62. We’ll invest this in a six-month GIC with Luminus Financial that pays 4.9% (annualized).
We’ll use some of our retained income as follows:
BIP.UN – We’ll add 10 units at $39.41for a total investment of $394.10. We now own 165 units and have $11.31 remaining in retained earnings.
All else remains the same.
We have cash and retained earnings of $3,315.25. These funds will be deposited in a Simplii Financial High Interest Savings Account, which is paying a promotional rate of 6%.
Here is the revised portfolio. I will review it again in six months.
Income Investor Balanced Portfolio (revised April 20/24)
Security | Weight
% |
Total
Shares |
Average
Cost |
Book
Value |
Market
Price |
Market
Value |
Retained
Income |
GIC
Oct 21/24 |
27.8 | 1 | $13,996.62 | $13,996.62 | $13,996.62 | $13,996.62 | $0 |
XBB | 10.8 | 200 | $28.00 | $5,600.00 | $27.13 | $5,428.00 | $188.00 |
XIG | 7.3 | 190 | $20.38 | $3,872.20 | $19.40 | $3,686.00 | $185.81 |
CAR.UN | 7.6 | 90 | $48.87 | $4,398.10 | $42.67 | $3,840.30 | $151.95 |
PPL | 8.6 | 90 | $47.13 | $4,242.00 | $47.98 | $4,318.20 | $306.00 |
BIP.UN | 12.9 | 165 | $16.98 | $2,801.80 | $39.41 | $6,502.65 | $11.31 |
BCE | 6.3 | 70 | $55.41 | $3,878.80 | $44.80 | $3.136.00 | $405.38 |
BMO | 11.3 | 45 | $109.85 | $4,943.20 | $126.75 | $5,703.75 | $480.70 |
FTS | 4.8 | 45 | $55.37 | $2,491.65 | $53.54 | $2,409.30 | $296.55 |
Cash | 2.6 | $1,289.55 | $1,289.55 | ||||
Total | 100.0 | $47,513.97 | $50,310.37 | $2,025.70 | |||
Inception | $25,027.75 |
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