Rate of Return: 1%

Initial Value $50000

October 25, 2017

Original Issue

Update Value $50642.43

May 4, 2020

Update Issue

Gordon Pape's Defensive portfolioBy Gordon Pape

This Low-Risk Portfolio was created out of the merger of two previous portfolios in October 2017. The goal was to minimize any stock market losses while providing a return that was at least a point and a half better than the top five-year GIC rate. Right now, the best rate showing on ratehub.ca is 2.6% so our current target is 4.10%.

The portfolio is comprised of the following securities. Here is an update on their performance with prices as of April 29.

iShares Core Canadian Universe Bond Index ETF (TSX: XBB). This ETF tracks the performance of the broad Canadian bond market, including both government and corporate bonds. Bond prices rose during the latest period as interest rates were slashed by central banks in response to the coronavirus lockdowns. As a result, the unit value of this ETF is up $0.95 since our last review. Also, we received $0.51 per unit in distributions for a total return for the period of 4.6%.

PIMCO Monthly Income Fund (TSX: PMIF). This ETF invests in non-Canadian fixed income securities from around the world. It was included in the portfolio to provide geographic diversification, but the performance has been disappointing. The market price is down $1.39 from the time of the last review in late October. we received monthly distributions totalling about $0.46.

 First Asset Enhanced Short Duration Bond ETF (TSX: FSB). This ETF invests in a portfolio that is divided between short duration high-yield securities and investment grade corporate bonds. It lost $0.03 per unit in the latest period but we received monthly distributions totaling about $0.14 per unit so we ended up slightly ahead.

Canadian Utilities Rate Reset Preferred Shares (TSX: CU.PR.I). This is a rate reset preferred from a leading utility company based in Alberta. It lost ground as interest rates declined, falling $1.42. We received two dividends totalling $0.5625.

 Royal Bank (TSX, NYSE: RY). Financial institutions were hit hard by the impact of the coronavirus. Low rates squeeze the profitability of banks and investors worried about escalating loan losses as businesses shut down. The result was a decline of $17.69 in the share price. The bank raised its quarterly dividend by $0.03 per share (2.9%) to $1.08, effective with the April payment. That means Canada’s largest bank is yielding about 5%. You don’t see that very often.

BMO Low Volatility Canadian Equity ETF (TSX: ZLB). This fund invests in a portfolio of Canadian stocks that are less sensitive to overall market moves – in technical terms, they have a low beta. These stocks are not risk-free, but they will normally lose less when the market declines. Conversely, they will tend to underperform in rising markets. The units are down $2.63 since the last review. We received two quarterly distributions totalling $0.45.

Sun Life Financial (TSX, NYSE: SLF). Like the banks, insurance companies were hit hard by the rapid fall in interest rates. Sun Life is down almost $10 per share since the last review, a huge move for a stock of this quality. We received two dividend payments during the period, for a total of $1.10 per share.

iShares Edge MSCI Minimum Volatility USA Index ETF (TSX: XMU). This fund takes a low beta approach to stock selection, with a focus on the U.S. market. Many of the names in the portfolio will be familiar to investors, including Coca-Cola, Visa, and Verizon. The units are down a modest $0.09 since the last review. We received two quarterly distributions totalling $0.46 per unit.

 Cash. We received interest of $14.64 from the $1,045.30 held in our on-line Savvy Savings Account at Motive Financial.

Here is a summary of the portfolio. Commissions are not included, and the Canadian and U.S. dollars are treated at par for ease of calculation.

IWB Low-Risk Portfolio (a/o April 29/20)

Security Weight

%

Number

Held

Average

Price

Book Value Market

Price

Market

Value

Retained

Income

Gain/

Loss

%

XBB 17.4 260 $30.88 $8,028.70 $32.82 $8,533.20 $267.36 + 9.6
PMIF 14.0 370 $19.61 $7,255.70 $18.58 $6,874.60 $289.43 – 1.3
FSB 12.7 630 $10.01 $6,303.30 $9.90 $6,237.00 $90.41 + 0.4
CU.PR.I 14.2 290 $26.00 $7,539.25 $23.98 $6,954.20 $168.84 – 5.5
RY 13.5 75 $101.17 $7,587.55 $88.34 $6,625.50 $173.50 -10.4
ZLB 7.6 120 $32.82 $3,938.40 $31.00 $3,720.00 $104.40 – 2.9
SLF 10.0 100 $55.20 $5,520.00 $49.17 $4,917.00 $410.00 – 3.5
XMU 9.8 85 $54.12 $4,600.20 $56.50 $4,802.50 $76.67 + 6.1
Cash 0.8     $383.18   $397.82    
Total 100.0     $51,156.28   $49,061.82 $1,580.61 – 1.0
Inception       $50,000.00       + 1.3

Comments: These results are very disappointing. The COVID recession hit our bank and insurance stocks hard, and they were the biggest contributors to the loss. We were also hurt by the weak performance of the PIMCO Monthly Income Fund (PMIF), which we expected to perform better in this environment.

The portfolio lost 4.6% in the latest period. About the best that can be said for that is it was a better result than investing in the broad stock market. We have a gain since inception of only 1.3%.

Clearly, this portfolio is falling well short of its objectives. Readers looking for a conservative place for their money would be better off using GICs at this point, even with rates so low.

Therefore, we are suspending coverage of this portfolio at this time. We may look at taking a new approach in future, when market conditions have stabilized. But right now, cash and GICs are the best options for ultra-low-risk investors.

 

 

 

 

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