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MINIMIZING RRSP LOSSES
By Gordon Pape, Editor and Publisher
Ideally, your strategy should be never to lose money in your RRSP. But unless you want to keep it all in cash and GICs, there are risks that must be accepted. In a bad year like 2022, even the most conservative RRSP portfolios lost ground. Not only did stock markets tank but the bond market, which was a safe haven for decades, delivered its worst results since the early 1980s.
In times such as these, the goal is to minimize losses and put the portfolio in a position to recover quickly. I believe our RRSP portfolio did that. Over the one-year period from February 2022 to this month, the portfolio fell 5.1%. No one likes losing ground, but that was a decent performance in the circumstances.
Our RRSP Portfolio was launched in February 2012. It has two main objectives: to preserve capital and to earn a higher rate of return than you could get from a GIC. The original value was $25,031.92.
About 30% of the portfolio is in bonds, preferred shares, and cash. The balance is in growth-oriented assets that offer exposure to the Canadian, US, and international equity markets. The portfolio contains a mix of ETFs, stocks, and limited partnerships so readers who wish to replicate it must have a self-directed RRSP with a brokerage firm.
These are the securities currently in the portfolio with comments on how they have performed since the last review in August. Results are as of the afternoon of Feb. 9
iShares 0-5 Years TIPS Bond Index ETF (TSX: XSTP). This ETF invests in short-term US Government inflation protected notes. They pay a low rate of return, but both the face value and the interest increase as inflation rises. This provides downside portfolio protection. The units are up $0.33 since the last review in August. We received distributions that totaled $0.956 per unit. Note that while distributions are monthly, they vary considerably and some months the payout is zero.
iShares Canadian Universe Bond Index ETF (TSX: XBB). This ETF tracks the performance of the total Canadian bond universe including government and corporate issues. Bonds are finally starting to rally after being crushed last year by rising interest rates. The units are down $0.60 since the last review but they have recovered from their 52-week low of $26.21. We received distributions of $0.311 per unit.
iShares Convertible Bond Index ETF (TSX: CVD). This fund invests in bonds that can be converted into common stocks under certain conditions. It offers a play on the stock market while providing cash flow. The units lost $0.13 in the latest period. That was more than offset by distributions of $0.425 per unit.
iShares S&P/TSX Canadian Preferred Share Index ETF (TSX: CPD). This ETF invests in a portfolio of preferred shares, mostly rate reset issues. These should tend to rise as interest rates move higher, but we didn’t see that in 2022 as the units dropped 18.4%. They’ve recovered some ground this year with an advance of 8.1% as of Feb. 8. Distributions totaled $0.306 per unit.
BMO S&P/TSX Banks Equal Weight Index ETF (TSX: ZEB). This ETF invests in shares of the Big Six Canadian banks. Banking stocks normally fare well in a rising interest rate environment, but recession fears weighed heavily on prices last year. The good news is we’re starting to see a recovery. The units are up $1.27 since the last review. Monthly distributions totaled $0.74.
iShares Edge MSCI Minimum Volatility USA Index ETF (CAD-Hedged) (TSX: XMS). XMS invests in low-beta US stocks such as T-Mobile, Cisco Systems, Johnson & Johnson, and PepsiCo. Low beta means they are less sensitive to broad market movements and, in theory, less risky. The fund posted a loss of $1.23 in the latest six months. Quarterly distributions totaled $0.196 per unit.
BMO Low Volatility Canadian Equity ETF (TSX: ZLB). This ETF invests in a portfolio of large-cap Canadian stocks that have a low beta history. It’s up $0.88 since the last review, and well ahead since it was added to the portfolio. We received two quarterly distributions for a total of $0.53.
BMO Low Volatility International Equity Hedged to Canadian Dollar ETF (TSX: ZLD). This ETF focuses on international stocks and is hedged to Canadian dollars, so the currency risk is removed. It lost a modest $0.04 in the latest period. Distributions totaled $0.32 per unit.
Brookfield Renewable Energy Partners LP (TSX: BEP.UN, NYSE: BEP). This Bermuda-based limited partnership owns a range of renewable power installations (mainly hydroelectric but also some wind and solar). Green energy stocks have gone through a prolonged slump and these units lost a gut-wrenching $14.57 in the latest period. We received two distributions for a total of US$0.64.
Brookfield Infrastructure Partners LP (TSX: BIP.UN, NYSE: BIP). This limited partnership invests in infrastructure projects around the world. It’s the biggest winner in the portfolio but has been trending down and lost $6.79 in the latest period. We received two distributions totaling US$0.72.
Fortis Inc. (TSX, NYSE: FTS). Interest-sensitive stocks were hit hard by the rapid rise in interest rates last year and Fortis did not escape. The shares were down $6.73 in the latest six months. Don’t be concerned; this is a sound utility, and the stock will recover. We received two dividends for a total of $1.10 per share.
BCE Inc. (TSX, NYSE: BCE). BCE was also driven lower by the rapid interest rate hikes. The stock is down $4.18 since the last review but, here again, don’t worry. BCE will be making profits for as long as any of us are alive. We received two quarterly dividends of $0.92 each.
Interest. We invested $2,606.77 in Duca Credit Union, which was offering a special promotion rate of 3.25%. We received $42.36 in interest.
Here is how the RRSP Portfolio stood as of Feb. 9. Commissions have not been factored in. Canadian and US currencies are treated at par but only come into play in the distributions from the two Brookfield funds.
IWB RRSP Portfolio (a/o Feb. 9/23)
| Security | Weight
% |
Shares | Average
Price |
Book
Value |
Current
Price |
Market
Value |
Retained
Income |
Gain/
Loss % |
| XSTP | 8.8 | 130 | $40.00 | $5,200.00 | $39.73 | $5,164.90 | $281.58 | +4.7 |
| XBB | 10.0 | 210 | $32.82 | $6,892.21 | $27.80 | $5,838.00 | $269.89 | -11.4 |
| CVD | 3.2 | 110 | $18.20 | $2,002.50 | $17.25 | $1,897.50 | $159.53 | +2.7 |
| CPD | 5.6 | 280 | $13.86 | $3,880.80 | $11.67 | $3,267.60 | $167.44 | -11.5 |
| ZEB | 10.7 | 170 | $42.46 | $7,218.20 | $36.98 | $6,286.60 | $248.20 | -9.5 |
| XMS | 7.8 | 150 | $28.19 | $4,228.50 | $30.64 | $4,596.00 | $297.90 | +15.7 |
| ZLB | 11.2 | 160 | $31.97 | $5,114.80 | $40.91 | $6,545.60 | $101.68 | +30.0 |
| ZLD | 4.2 | 100 | $24.04 | $2,404.00 | $24.53 | $2,453.00 | $240.00 | +12.0 |
| BEP.UN | 10.1 | 160 | $21.08 | $3,373.56 | $36.98 | $5,916.80 | $307.26 | +84.5 |
| BIP.UN | 14.8 | 190 | $19.18 | $3,643.48 | $45.59 | $8.662.10 | $191.39 | +143.0 |
| FTS | 6.4 | 70 | $57.67 | $4,050.90 | $53.62 | $3,753.40 | $224.70 | -2.0 |
| BCE | 6.2 | 60 | $65.07 | $3,904.20 | $60.65 | $3,639.00 | $525.72 | +6.7 |
| Cash | 1.0 | $535.78 | $578.14 | |||||
| Totals | 100.0 | $52,448.93 | $58,598.64 | $3,015.29 | +17.5 | |||
| Inception | $25,031.92 | +146.1 |
Comments: Everything was down last year. Our RRSP Portfolio didn’t escape. We managed a small gain in the first part of the year but lost 5.3% in the latest six-month period. For the 12 months, we were down 5.1%.
The biggest losers were the two Brookfield limited partnerships, and that hurt even more because they are our two largest holdings. We will address that in a moment.
Over the eleven years since the portfolio was launched, we have a total return of 146.1%. That’s an average annual growth rate of 8.53%. That’s down over the past year but still well above target. There are no 8% GICs around.
Changes: We will sell our positions in BEP.UN and BIP.UN for a total (including retained earnings) of $15,077.55.
We will use $9,886 to buy 200 shares of Brookfield Corporation (TSX, NYSE: BN) at $49.43. This move allows us to retain some exposure to the company’s infrastructure and energy assets (Brookfield is a major shareholder in the two partnerships) while allowing us to participate in other aspects of the business such as real estate, asset management, and insurance. In short, we are trading for more diversity and stability.
We will also buy 100 shares of Enbridge at $52.90 for a total expense of $5,290. This provides some exposure to the booming energy industry as well as giving us a nice yield of 6.7%. We’re short $98.45, which we’ll take from cash.
We will use retained earnings to add to these positions:
XBB – We will purchase another 10 units for a cost of $278. That will give us 220 units and reduce the cash balance to zero. We are short $8.11, which we will take from cash.
ZLD – We’ll buy another 10 units for $24.53, for a cost of $245.30. We now have 110 units with no retained earnings. We’ll take $5.30 from cash to make up the difference.
The new cash balance (including retained income) is $2,473.03. We will keep it at Duca Credit Union, which is offering 4.25% now. That increases to 4.75% after April 30.
Here is the revised portfolio. I’ll review it again in August.
IWB RRSP Portfolio (revised Feb. 9/23)
| Security | Weight
% |
Shares | Average
Price |
Book
Value |
Current
Price |
Market
Value |
Retained
Income |
| XSTP | 8.7 | 130 | $40.00 | $5,200.00 | $39.73 | $5,164.90 | $281.58 |
| XBB | 10.3 | 220 | $32.82 | $7,170.21 | $27.80 | $6,116.00 | $0 |
| CVD | 3.2 | 110 | $18.20 | $2,002.50 | $17.25 | $1,897.50 | $159.53 |
| CPD | 5.5 | 280 | $13.86 | $3,880.80 | $11.67 | $3,267.60 | $167.44 |
| ZEB | 10.5 | 170 | $42.46 | $7,218.20 | $36.98 | $6,286.60 | $248.20 |
| XMS | 7.7 | 150 | $28.19 | $4,228.50 | $30.64 | $4,596.00 | $297.90 |
| ZLB | 11.0 | 160 | $31.97 | $5,114.80 | $40.91 | $6,545.60 | $101.68 |
| ZLD | 4.5 | 110 | $24.08 | $2,649.30 | $24.53 | $2,698.30 | $0 |
| BN | 16.6 | 200 | $49.53 | $9,886.00 | $49.53 | $9,886.00 | $0 |
| ENB | 8.9 | 100 | $52.90 | $5,290.00 | $52.90 | $5,290.00 | $0 |
| FTS | 6.3 | 70 | $57.67 | $4,050.90 | $53.62 | $3,753.40 | $224.70 |
| BCE | 6.1 | 60 | $65.07 | $3,904.20 | $60.65 | $3,639.00 | $525.72 |
| Cash | 0.7 | $466.28 | $466.28 | ||||
| Totals | 100.0 | $61,061.59 | $59,607.18 | $2,006.75 | |||
| Inception | $25,031.92 |