IWB Global TFSA Portfolio

An investment portfolio to maximize the tax savings potential of TFSAs.

7.9%

By Gordon Pape

These are tough times for ETF investors. Their securities track the broad indexes, and most are not doing well right now, despite the recent rally. But there is one big exception – technology stocks, which dominate Nasdaq. They almost single-handedly powered our Global TFSA Portfolio to a modest gain in the most recent review period.

This portfolio was launched in March 2012, so it is now a little over eight years old. I stressed when I started it, and several times since, that the portfolio is only suitable for readers who want to maximize capital gains in a Tax-Free Savings Account. This is done through 100% exposure to domestic and international stocks, through the use of ETFs. That means you should only invest in this portfolio if you are willing to accept a higher degree of risk and volatility. We are looking for an average annual return in the 8-10% range.

Here’s a look at how our ETFs have performed since the last update in early October. Results are as of the afternoon of May 28.

iShares Core S&P/TSX Capped Composite Index ETF (TSX: XIC). This ETF tracks the performance of the S&P/TSX Composite Index. We lost $1.50 per unit since the last review in early October, however that was partially offset by two quarterly distributions totalling $0.417.

iShares S&P/TSX Small Cap Index ETF (TSX: XCS). This ETF tracks Canadian small cap stocks, which have been doing poorly for some time. The reason is that a large percentage of these issues are in the mining sector, which is going through a prolonged recession. This ETF lost $1.68 in the latest period. We received two small distributions totalling $0.13411 per unit.

iShares U.S. Small Cap Index ETF (CAD-Hedged) (TSX: XSU). This U.S. small-cap ETF did well for us for several years, but it’s been struggling lately. The units lost $1.54 in the latest period. We received a semi-annual distribution in December of $0.21565.

iShares Core S&P 500 Index ETF (CAD-Hedged) (TSX: XSP). This ETF tracks the performance of the S&P 500. Despite the March sell-off, the units are up $1.29 since the last review and we received a year-end distribution of a fraction over $0.37.

 BMO Nasdaq 100 Equity Hedged to CAD Index ETF (TSX: ZQQ). Tech stocks have been powering the stock market for some time, and this ETF is the evidence. The fund provides exposure to the top 100 stocks on the Nasdaq exchange, which is heavily weighted to technology. Tech stocks have done well during the pandemic and this fund is up $13.56 since the last review. The fund only makes annual distributions and we received a payment of $0.33 a unit in December.

iShares MSCI EAFE Index ETF (CAD-Hedged) (TSX: XIN). This ETF tracks markets in Europe, Asia, and the Far East. The units are down $1.42 since the last review. We received a semi-annual distribution of $0.334 per unit in December.

iShares MSCI Frontier 100 ETF (NYSE: FM). This ETF holds major companies in Third World countries from Nigeria to Vietnam. These markets have been badly hit by the effects of the pandemic and the units are down US$4.36 since the last review. We received a semi-annual distribution of US$0.156 in December.

iShares MSCI Emerging Markets ETF (NYSE: EEM). Emerging Markets were also hit by the pandemic-induced recession and this ETF is down US$3.58 since our last review. However, we did receive a large year-end distribution of US$0.929 per unit.

We received $18.95 in interest from the cash balance in our Motive Financial high-interest savings account.

Here’s a look at how the portfolio stood on the afternoon of May 28. The Canadian and U.S. dollars are treated at par, and commissions are not considered. The percentage in the Gain/Loss column represents the cumulative return since the portfolio was launched or since the security was added. The initial book value was $20,002.30.

IWB Global TFSA Portfolio (a/o May 28/20)

Security	Weight %	Total Shares	Average Price	Book Value	Current Price	Market Value	Retained Income	Gain/ Loss %
XIC	16.7	240	$20.13	$4,831.35	$24.44	$5,865.60	$319.02	+28.0
XCS	5.7	160	$16.09	$2,575.05	$12.38	$1,980.80	$37.46	-21.6
XSU	14.9	180	$17.96	$3,297.80	$29.00	$5,220.20	$154.62	+63.0
XSP	21.0	220	$17.06	$3,752.70	$33.42	$7,352.40	$198.74	+101.2
ZQQ	29.0	145	$21.44	$3,208.90	$69.98	$10,147.10	$176.76	+221.7
XIN	7.6	110	$19.98	$2,197.95	$24.17	$2,658.70	$286.59	+34.0
FM	2.4	35	$35.09	$1,228.30	$23.70	$829.50	$116.89	-23.0
EEM	2.6	25	$41.57	$1,039.25	$37.11	$927.75	$133.58	+ 2.1
Cash	0.1			$20.57		$39.52
Total	100.0			$21,993.17		$35,021.57	$1,423.66	+65.7
Inception				$20,002.30				+82.2

Comments: We managed a gain of just under 4% in the latest period, despite the fact that only ZQQ and XSP were on the plus side. Since inception, the portfolio has gained 82.2%, which works out to a compound annual rate of return of 7.89%. That’s close to our target range.

Changes: Under normal circumstances I would rebalance this portfolio to reduce our exposure to ZQQ, which now accounts for 28.8% of total assets. However, these are not normal times and ZQQ is currently our only major growth holding. So, we will leave the position intact for now, but if it tops 30% at the next review we will need to sell some units.

We will use some of our retained earnings to add to our positions in XIN. We will buy 10 units at $24.17 for a cost of $241.70. That will give us a total of 120 units and decrease retained income to $44.89.

Everything else remains the same.

We have $1,221.48 in cash and retained income, which we will keep in our Savvy Savings Account at Motive Financial (a division of Canadian Western Bank), which now pays 2.2%.

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

IWB Global TFSA Portfolio (revised May 28/20)

Security	Weight %	Total Shares	Average Price	Book Value	Current Price	Market Value	Retained Income
XIC	16.6	240	$20.13	$4,831.35	$24.44	$5,865.60	$319.02
XCS	5.6	160	$16.09	$2,575.05	$12.38	$1,980.80	$37.46
XSU	14.8	180	$17.96	$3,297.80	$29.00	$5,220.20	$154.62
XSP	20.9	220	$17.06	$3,752.70	$33.42	$7,352.40	$198.74
ZQQ	28.8	145	$21.44	$3,208.90	$69.98	$10,147.10	$176.76
XIN	8.2	120	$20.33	$2,439.65	$24.17	$2,900.40	$44.89
FM	2.4	35	$35.09	$1,228.30	$23.70	$829.50	$116.89
EEM	2.6	25	$41.57	$1,039.25	$37.11	$927.75	$133.58
Cash	0.1			$39.52		$39.52
Total	100.0			$22,253.82		$35,263.27	$1,181.96
Inception				$20,002.30

 

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