6.8%
By Gordon Pape
In February 2013 I created a model RRIF portfolio for this newsletter with an initial value of $49,910.30. Its twin objectives are income generation and capital preservation. The focus is on low-risk assets that provide decent cash flow. Here are the current positions with a commentary on how they have fared since the last review in late February.
MAXA Financial five-year GIC. Our original three-year GIC matured in February 2016. We reinvested the $13,418.75 that we received (principal and accrued interest) in a new five-year GIC paying 2.5%, with annual payments, which are compounded. The GIC will mature in February 2021.
iShares Floating Rate Index ETF (TSX: XFR). This ETF invests in a portfolio of floating-rate bonds, whose interest payments are adjusted to reflect rate changes. It is trading at exactly the same price as the last update in February, but we received $0.163 per unit in distributions.
iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (TSX: CDZ). This fund invests in a portfolio of mainly large-cap companies that have increased their dividends annually for at least five years. It was added to the portfolio in February and has generated a total return of 5% since.
PIMCO Monthly Income ETF (TSX: PMIF). This ETF invests in investment-grade bonds from developed countries around the world as well as some mortgage-backed securities. It pays monthly distributions, which vary significantly from one month to the next. The unit price was up $0.18 in the latest period as bonds strengthened. We received distributions of about $0.33 per unit.
BMO US High Dividend Covered Call ETF (TSX: ZWH). This ETF invests in a portfolio of high-yielding U.S. stocks, and the managers write out-of-the-money covered call options to increase cash flow. It has not performed as well as I expected when I added it in February. The unit price is down $0.48 since then; however, that was offset by distributions totaling $0.63 per unit, resulting in a slight overall gain.
BCE Inc. (TSX, NYSE: BCE). BCE shares were strong in the latest period, boosted in part by rate declines. We gained $3.29 per share, plus we received two quarterly dividends totaling $1.585.
Pembina Pipeline (TSX, NYSE: PPL). We replaced Inter Pipeline with this company in February. So far, we have done slightly better than breakeven. The shares dropped $0.35 during the six months, but we received dividends of $1.18 per share, for a net gain of 1.7%.
Brookfield Infrastructure LP (TSX: BIP.UN, NYSE: BIP). This Bermuda-based limited partnership continues to be the powerhouse of this portfolio. It is up $7.23 since our last review, and we received two distributions totaling just over US$1.00.
First Asset U.S. & Canada Lifeco Income ETF (TSX: FLI). This ETF was added to the portfolio in February 2018. It invests in a portfolio of Canadian and U.S. life insurance companies. It continues to disappoint and is down more than 13% since we added it.
Cash. We kept the cash balance of $1,315.01 in a high-interest savings account with EQ Bank paying 2.3%. Interest earned in the latest period was $15.12.
Here’s a look at the RRIF Portfolio as it stood at the close of trading on Aug. 23. The market value of the GIC includes all compounded earnings to date. Note that commissions are not deducted, and that U.S. and Canadian currencies are treated at par. Although this is a RRIF portfolio, withdrawals are not factored in, as this would make it impossible to track performance accurately.
Income Investor RRIF Portfolio (a/o Aug. 23/19)
| Security | Weight % |
Average Cost |
Shares/ Units |
Book Value |
Current Price |
Market Value |
Retained Earnings |
Gain/Loss % |
| MAXA GIC | 19.7 | $13,418.75 | 1 | $13,418.75 | $13,418.75 | $14,631.16 | $0 | + 9.0 |
| XFR | 7.5 | $20.17 | 275 | $5,546.75 | $20.14 | $5,538.50 | $168.14 | + 2.9 |
| CDZ | 9.7 | $25.98 | 270 | $7,014.60 | $26.52 | $7,160.40 | $202.50 | + 5.0 |
| PMIF | 9.1 | $19.88 | 340 | $6,757.80 | $19.92 | $6,772.80 | $149.55 | + 2.4 |
| ZWH | 11.5 | $20.37 | 430 | $8,759.10 | $19.89 | $8,552.70 | $270.90 | + 0.7 |
| BCE | 11.6 | $46.72 | 140 | $6,540.85 | $61.38 | $8,593.20 | $448.01 | +38.2 |
| PPL | 9.3 | $47.83 | 145 | $6,935.35 | $47.48 | $6,884.60 | $171.10 | + 1.7 |
| BIP.UN | 18.1 | $28.45 | 220 | $6,259.15 | $60.87 | $13,391.40 | $727.10 | +125.6 |
| FLI | 3.1 | $12.94 | 220 | $2,846.80 | $10.32 | $2,270.40 | $203.25 | -13.1 |
| Cash | 0.4 | $297.32 | $312.14 | |||||
| Totals | 100.0 | $61,529.67 | $74,107.30 | $2,340.55 | +24.2 | |||
| Inception | $49,910.30 | +53.2 |
Comments: The portfolio gained 4.5% in the latest period, due mainly to large gains for BCE and the Brookfield partnership.
Since inception six and a half years ago, we have a cumulative total return of 53.2%. That works out to an average annual compounded rate of return of 6.78%. Our target is in the 5% to 6% range, given that much of the portfolio is in GICs and bonds.
Changes: The investment climate has changed significantly since the last review in February. At that time, it was expected that interest rates would likely rise or at least remain stable and the economy would perform at a decent rate. Today, rates are in decline, and the U.S.-China trade war has escalated to a level that threatens to plunge the world into recession. These circumstances suggest we should be even more defensive with our RRIFs. As a result, I am making the following changes.
We will sell our position in FLI for proceeds of $2,473.65. Falling interest rates are bad news for insurers, so we need to move on. We will also divest our holding in XFR for proceeds of $5,706.64. This type of fund is good to hold when interest rates are rising but not when they are pulling back. As well, we will sell ZWH for $8,823.60. We have owned it for only a short time, but I am not pleased with the performance or the outlook. This gives us a total of $17,003.89 to reinvest. This will be distributed as follows.
iShares Core Canadian Universe Bond Index ETF (TSX: XBB). This bond fund seeks to replicate the performance of the broad Canadian market, including both government and corporate issues. It has been a solid performer over the years, rarely losing money. It’s ahead almost 8% this year, thanks to falling interest rates. The MER is 0.1%. We will buy 200 units at $32.52 for an investment of $6,504.
CI First Asset Canadian REIT ETF (TSX: RIT). Real estate investment trusts tend to do well when interest rates are falling and usually hold up better than the broad market in a recession. This ETF invests in a diversified REIT portfolio. We will buy 350 units at a price of $18.23, for $6,380.50.
iShares S&P/TSX Capped Utilities Index ETF (TSX: XUT). No stock is immune from a recession, but utilities fare better than most because much of their revenue is regulated. These companies also benefit from falling interest rates because their cost of borrowing decreases and their yield becomes more attractive. These units are currently trading at $25.27. We will buy 160 units for a cost of $4,043.20.
That leaves us with $76.19, which we will add to our cash account.
We will also buy another 10 shares of BIP.UN for a total of $608.70. That will give us a total of 230 units and leave us with retained earnings of $118.40.
We now have $1,477.89 in cash and retained earnings. We will move that to a Savvy Savings Account at Motive Financial, which is currently paying 2.8%.
Here is the revised portfolio. I will review it again in February.
Income Investor RRIF Portfolio (revised Aug. 23/19)
| Security | Weight % |
Average Cost |
Shares/ Units |
Book Value |
Current Price |
Market Value |
Retained Earnings |
| MAXA GIC | 19.4 | $13,418.75 | 1 | $13,418.75 | $13,418.75 | $14,631.16 | $0 |
| XBB | 8.6 | $32.52 | 200 | $6,504.00 | $32.52 | $6,504.00 | $0 |
| CDZ | 9.5 | $25.98 | 270 | $7,014.60 | $26.52 | $7,160.40 | $202.50 |
| PMIF | 9.0 | $19.88 | 340 | $6,757.80 | $19.92 | $6,772.80 | $149.55 |
| RIT | 8.5 | $18.23 | 350 | $6,380.50 | $18.23 | $6,380.50 | $0 |
| BCE | 11.4 | $46.72 | 140 | $6,540.85 | $61.38 | $8,593.20 | $448.01 |
| PPL | 9.1 | $47.83 | 145 | $6,935.35 | $47.48 | $6,884.60 | $171.10 |
| BIP.UN | 18.6 | $28.45 | 230 | $6,867.85 | $60.87 | $14,000.10 | $118.40 |
| XUT | 5.4 | $25.27 | 160 | $4,043.20 | $25.27 | $4,043.20 | $0 |
| Cash | 0.5 | $388.33 | $388.33 | ||||
| Totals | 100.0 | $64,851.23 | $75,358.29 | $1,089.56 | |||
| Inception | $49,910.30 |
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