Rate of Return: 6.5%
Initial Value $25027.75
September 21, 2011
Update Value $53620.79
November 28, 2024
BALANCED PORTFOLIO GAINS ON RATE CUTS
By Gordon Pape, Editor and Publisher
When central banks started raising rates to fight inflation, the hardest-hit securities were bonds and dividend stocks. These are core holdings in a balanced portfolio, so anyone using that investment style saw a big drop in their net worth.
But now the situation has changed. Central banks are cutting rates to stimulate a fragile economy, and our Balanced Portfolio is one of the beneficiaries. For the past year, it has been posting strong gains and should continue to do so as long as we don’t get a rate reversal.
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 current situation is a little different – the entire stock market is doing well, and we’re going along for the ride.
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 4.1%, which would make our current target 6.1%. We’re doing better than that.
Here’s a summary of the securities we currently hold and how they performed over the period since I last reviewed this portfolio in April. Prices are as of the close of trading on Nov. 22.
GIC. We invested $13,996.62 in a six-month GIC with Luminus Financial that paid 4.9% (annualized). We received interest of $342.92.
iShares Core Canadian Universe Bond Index ETF (TSX: XBB). Bonds are gradually recovering as central banks cut their target rates, but there’s still a lot of uncertainty in the marketplace. The units are up $0.77 since the last review, and we received monthly distributions that totaled $0.621 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 $0.47. The monthly distributions totaled $0.525.
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 a turnaround. This REIT gained $2.02 in the latest period. We received monthly distributions totaling $0.86 per unit.
Pembina Pipeline Corp. (TSX: PPL, NYSE: PBA). Pipeline stocks continue to perform well, with the shares of PPL up $12.03. We received two quarterly payments for a total per-share cash flow of $1.38.
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 long slump the units have been steadily climbing and gained $9.15 in the latest period. The quarterly distribution was increased to US$0.41 per unit, effective with the February payment.
BCE Inc. (TSX, NYSE: BCE). The company shocked investors by selling its position in Maple Leaf Sports and Entertainment to Rogers Inc. and then using the money to invest in a US fibre optics company instead of reducing debt. The shares fell as low as $36.95 and are still close to that level. The stock pays a dividend of $0.9975 per quarter to yield 10.7%.
Bank of Montreal (TSX, NYSE: BMO). The financial sector has performed well recently, and BMO shares gained $5.93 during the latest period. The bank raised its quarterly dividend by 3.3%, to $1.55, effective with the July payment.
Fortis Inc. (TSX, NYSE: FTS). As interest rates fall, utility prices are rising. The stock gained $9.59 per share in the latest period, and we received three dividends totaling $1.80 per share.
Cash. We invested our cash and retained earnings of $3,315.25. in a Simplii Financial High Interest Savings Account, which was paying a rate of 6%. We earned $116.03.
Here’s how the portfolio stands now. Commissions have not been factored in.
Income Investor Balanced Portfolio (a/o Nov. 22/24)
| Security |
Weight |
Total |
Average |
Book |
Market |
Market |
Retained |
Gain/ |
| GIC Oct 21/24 |
26.1 |
1 |
$13,996.62 |
$13,996.62 |
$13,996.62 |
$13,996.62 |
$342.92 |
+2.5 |
| XBB |
10.4 |
200 |
$28.00 |
$5,600.00 |
$27.90 |
$5,580.00 |
$312.20 |
+5.2 |
| XIG |
7.0 |
190 |
$20.38 |
$3,872.20 |
$19.87 |
$3,775.30 |
$285.58 |
+4.9 |
| CAR.UN |
7.5 |
90 |
$48.87 |
$4,398.10 |
$44.69 |
$4,022.10 |
$229.35 |
-3.3 |
| PPL |
10.1 |
90 |
$47.13 |
$4,242.00 |
$60.01 |
$5,400.90 |
$430.20 |
+37.5 |
| BIP.UN |
14.9 |
165 |
$16.98 |
$2,801.80 |
$48.56 |
$8,012.40 |
$146.61 |
+191.2 |
| BCE |
5.0 |
70 |
$55.41 |
$3,878.80 |
$37.42 |
$2,619.40 |
$615.38 |
-16.6 |
| BMO |
11.1 |
45 |
$109.85 |
$4,943.20 |
$132.68 |
$5,970.60 |
$701.65 |
+35.0 |
| FTS |
5.2 |
45 |
$55.37 |
$2,491.65 |
$63.13 |
$2,840.85 |
$377.55 |
+29.2 |
| Cash |
2.7 |
|
|
$1,289.55 |
|
$1,402.58 |
|
|
| Total |
100.0 |
|
|
$47,513.97 |
|
$53,620.79 |
$3,441.44 |
+20.1 |
| Inception |
|
|
|
$25,027.75 |
|
|
|
+128.0 |
Comments: This portfolio posted a profit of just over 9% in the latest period. The portfolio is now valued at $57,062.23.
The cumulative gain since inception 13 years ago is 128%. That works out to an average annual compound growth rate of 6.54%. That’s a little better than our goal.
Changes: We have a maturing GIC with a total value of $14,339.54. We’ll invest this in a five-month promotional GIC with Tangerine Bank that pays 5.5% (annualized).
I am very concerned with the performance of BCE. I’m not prepared to sell it yet, but we won’t buy more until we have evidence the company is back on track.
We’ll use some of our retained income as follows:
XBB – We’ll buy 10 units at a cost of $279. We now have 210 units, with a reserve of $33.20.
XIG – We’ll add 10 units at $19.87 for a total investment of $198.70. We now own 200 units and have $86.88 remaining in retained earnings.
All else remains the same.
We have cash and retained earnings of $4,023.40. These funds will be deposited in a Duca Credit Union Savings Account, which is paying a promotional rate of 4%.
Here is the revised portfolio. I will review it again in six months.
Income Investor Balanced Portfolio (revised Nov. 22/24)
| Security |
Weight |
Total |
Average |
Book |
Market |
Market |
Retained |
| GIC April 22/25 |
26.3 |
1 |
$14,339.54 |
$14,339.54 |
$14,339.54 |
$14,339.54 |
$0 |
| XBB |
10.8 |
210 |
$28.00 |
$5,879.00 |
$27.90 |
$5,859.00 |
$33.20 |
| XIG |
7.3 |
200 |
$20.35 |
$4,070.50 |
$19.87 |
$3,974.00 |
$86.88 |
| CAR.UN |
7.4 |
90 |
$48.87 |
$4,398.10 |
$44.69 |
$4,022.10 |
$229.35 |
| PPL |
9.9 |
90 |
$47.13 |
$4,242.00 |
$60.01 |
$5,400.90 |
$430.20 |
| BIP.UN |
14.7 |
165 |
$16.98 |
$2,801.80 |
$48.56 |
$8,012.40 |
$146.61 |
| BCE |
4.8 |
70 |
$55.41 |
$3,878.80 |
$37.42 |
$2,619.40 |
$615.38 |
| BMO |
11.0 |
45 |
$109.85 |
$4,943.20 |
$132.68 |
$5,970.60 |
$701.65 |
| FTS |
5.2 |
45 |
$55.37 |
$2,491.65 |
$63.13 |
$2,840.85 |
$377.55 |
| Cash |
2.6 |
|
|
$1,402.58 |
|
$1,402.58 |
|
| Total |
100.0 |
|
|
$48,447.17 |
|
$54,441.41 |
$2,620.82 |
| Inception |
|
|
|
$25,027.75 |
|
|
|
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