8.1%
Balanced Portfolio posts another gain
By Gordon Pape
The Income Investor Balanced Portfolio was launched in September 2011. It offers a conservative mix of stocks, fixed income securities, and cash. This type of portfolio is likely to underperform when stock markets are strong but reduces risk when bear markets emerge.
This 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 3.3% from CIBC, which would make our current target 5.3%.
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 March 25.
GIC. We have $5,000 in a one-year GIC with Peoples Bank, paying 1.55% at maturity on April 23, 2022. When it matures, we will move the total proceeds to a new one-year GIC with EQ Bank paying 2.25%.
iShares Convertible Bond Index ETF (TSX: CVD). This ETF invests in a portfolio of convertible bonds. These can be exchanged for common shares in a company at a predetermined price, so they offer the potential of a capital gain along with regular bond interest. We added this fund a year ago at a price of $18.59. We saw a small gain in the first six months, but the fund was down $0.49 in the latest period. We received monthly distributions totaling $0.415 per unit.
iShares Core Canadian Universe Bond Index ETF (TSX: XBB). This fund tracks the performance of the broad Canadian bond market. It is currently a rough time for bonds, and with interest rates poised to rise much higher, it’s not going to get better. The units lost $2.86 (-9.1%) in the latest period, a big loss for a bond ETF. We received monthly distributions totalling $0.394 per unit.
Canadian Apartment Properties REIT (TSX: CAR.UN). This REIT invests in apartment units across Canada. We saw a pullback in the latest period, with the units losing $4.43. We received monthly distributions totaling just over $0.60 per unit.
Pembina Pipe Corp. (TSX: PPL, NYSE: PBA). Pembina’s stock continues to rebound as oil prices rise. The shares gained $6.35 since the last review, and we received six monthly dividends of $0.21 each.
Brookfield Renewable Partners (TSX: BEP.UN, NYSE: BEP). After a long downtrend, the units of this green energy partnership rallied strongly in the latest period, gaining $4.41 (9.8%). We received two quarterly distributions for a total of $0.6275.
Brookfield Infrastructure Limited Partnership (TSX: BIP.UN, NYSE: BIP). This Brookfield partnership invests in infrastructure projects worldwide: railroads; ports; transmission lines; toll roads; etc. It continues to perform well, with the units advancing $9.58 (13.6%) in the latest six months. We received two quarterly distribution totalling $1.05.
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. Since then, the stock is up $11.72 (20.9%). The quarterly dividend was recently raised again to $0.92 per share.
Bank of Montreal (TSX, NYSE: BMO). The financial sector is benefiting from rising interest rates. BMO shares were up $18.25 (14%) in the latest six-month period. The bank raised its quarterly dividend by 25.5% to $1.33, effective with the January payment.
Fortis Inc. (TSX, NYSE: FTS). We added this St. John’s-based utility a year ago, at $55.37 per share. It’s now at $60.33, for a gain of $4.96 (9%). We received two dividends of $0.535 each.
Cash. We invested $3,329.87 in a high interest savings account with Motive Financial that was paying 1.25% at the time. We earned interest of $20.81 for the period.
Here’s how the portfolio stands now. Commissions have not been factored in.
Income Investor Balanced Portfolio (a/o March 25/22)
| Security | Weight
% |
Total
Shares |
Average
Cost |
Book
Value |
Market
Price |
Market
Value |
Retained
Income |
Gain/
Loss % |
| GIC | 9.3 | 1 | $5,000.00 | $5,000.00 | $5,000.00 | $5,000.00 | $71.04 | +1.4 |
| CVD | 7.7 | 230 | $18.59 | $4,275.70 | $17.95 | $4,128.50 | $193.20 | + 1.1 |
| XBB | 14.0 | 260 | $32.02 | $8,326.30 | $28.96 | $7,529.60 | $230.88 | – 6.8 |
| CAR.UN | 8.1 | 80 | $49.69 | $3,975.20 | $54.17 | $4,333.60 | $325.29 | +17.2 |
| PPL | 7.1 | 80 | $47.49 | $3,799.50 | $47.41 | $3,792.80 | $285.60 | + 7.3 |
| BEP.UN | 14.8 | 160 | $11.98 | $1,916.18 | $49.57 | $7,931.20 | $288.70 | +329.0 |
| BIP.UN | 13.4 | 90 | $16.58 | $1,492.30 | $79.80 | $7,182.00 | $754.30 | +431.8 |
| BCE | 7.6 | 60 | $56.20 | $3,372.00 | $67.92 | $4,075.20 | $372.43 | +31.9 |
| BMO | 11.1 | 40 | $108.26 | $4,330.40 | $149.15 | $5,966.00 | $593.20 | +51.5 |
| FTS | 5.0 | 45 | $55.37 | $2,491.65 | $60.33 | $2,714.85 | $93.60 | +12.7 |
| Cash | 1.9 | $989.18 | $1,025.67 | |||||
| Total | 100.0 | $39,968.41 | $53,679.42 | $3,208.24 | +42.3 | |||
| Inception | $25,027.75 | +127.3 |
Comments: Bonds continued to struggle in a bear market, and we experienced a setback in our REIT. But the rest of our stocks performed well, with especially strong gains from PPL, BMO, and BIP.UN. Overall, we gained 5.7% in the latest six-month period.
The cumulative gain since inception 10 1/2 years ago is 127.3%. That works out to an average annual compound growth rate of 8.13%. That’s well above target.
Changes: Bonds continue to be rocked by rising rates, and with inflation continuing strong I don’t see that scenario changing any time soon. The main concern is XBB, which I have recommended for years, and which has a 9.6% weighting. It’s down 7.44% year-to-date, and there’s more potential losses to come.
To protect our asset base, we will sell our entire position in XBB for a total of $7,760.48, including retained earnings. We will put that money into a one-year GIC with EQ Bank paying 2.25%. It will mature on March 25, 2023.
When the current GIC with Peoples Bank matures on April 23, the proceeds will be moved to a new one-year GIC, also with EQ Bank. In this way, most of our fixed-income assets will be protected from losses in this rising rate environment.
We will also buy 10 units of CVD for a total of $179.50. That will give us a total of 240 units and reduce retained income to $13.70. CVD has held up better that most fixed-income funds, losing only 1.48% year-to-date.
We now have a cash balance, including retained earnings, of $3,823.53. We’ll move this money to EQ Bank where it will earn 1.25% in a high-interest savings account.
Here is the revised portfolio. I will review it again in September.
Income Investor Balanced Portfolio (revised March 25/22)
| Security | Weight
% |
Total
Shares |
Average
Cost |
Book
Value |
Market
Price |
Market
Value |
Retained
Income |
| GIC Apr.23/22 | 9.2 | 1 | $5,000.00 | $5,000.00 | $5,000.00 | $5,000.00 | $71.04 |
| GIC Mar.25/23 | 14.3 | 1 | $7,760.48 | $7,760.48 | $7,760.48 | $7,760.48 | 0 |
| CVD | 8.0 | 240 | $18.56 | $4,455.20 | $17.95 | $4,308.00 | $13.70 |
| CAR.UN | 8.0 | 80 | $49.69 | $3,975.20 | $54.17 | $4,333.60 | $325.29 |
| PPL | 7.0 | 80 | $47.49 | $3,799.50 | $47.41 | $3,792.80 | $285.60 |
| BEP.UN | 14.7 | 160 | $11.98 | $1,916.18 | $49.57 | $7,931.20 | $288.70 |
| BIP.UN | 13.3 | 90 | $16.58 | $1,492.30 | $79.80 | $7,182.00 | $754.30 |
| BCE | 7.5 | 60 | $56.20 | $3,372.00 | $67.92 | $4,075.20 | $372.43 |
| BMO | 11.1 | 40 | $108.26 | $4,330.40 | $149.15 | $5,966.00 | $593.20 |
| FTS | 5.0 | 45 | $55.37 | $2,491.65 | $60.33 | $2,714.85 | $93.60 |
| Cash | 1.9 | $1,025.67 | $1,025.67 | ||||
| Total | 100.0 | $39,618.58 | $54,089.80 | $2,797.86 | |||
| Inception | $25,027.75 |
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