6.6%
SMALL GAIN FOR RRIF PORTFOLIO
By Gordon Pape
This month marks the ninth anniversary of the launch of our model RRIF portfolio. It was created in February 2013 with an initial value of $49,910.30.
This portfolio differs from an RRSP in two fundamental ways. First, it is lower risk. RRIF investors are in their retirement years, and preservation of capital becomes more important as a result. A major stock market crash would make life very difficult for those who rely on their RRIFs for income.
Second, the portfolio should generate income to provide cash for the annual withdrawals. That means focusing on securities with good yields as opposed to those that depend on capital gains for investor returns.
Here are the current positions with a commentary on how they have fared since the last review in August. Prices are as of the close on Feb. 18.
iShares Core Balanced ETF Portfolio (TSX: XBAL). A year ago, we bought 200 units of this fund of funds. It invests in eight basic iShares funds, with a mix of about 60% stocks, 40% bonds. It started well but faltered in the latest six-month period, losing $1.02 per unit. We received two quarterly distributions totaling $0.232 per unit.
iShares Core Canadian Universe Bond Index ETF (TSX: XBB). This bond fund seeks to replicate the performance of the broad Canadian bond market, including both government and corporate issues. Bonds continue to be negatively affected by rising interest rates, and this ETF dropped $1.98 in the latest period. We received six monthly distributions totaling $0.395 per unit.
iShares Core U.S. Aggregate Bond ETF (NYSE: AGG). This is similar in concept to XBB except that it tracks the performance of the broad US bond market. The units are down $6.29 since the last review. We received six monthly distributions for a total of US$0.967.
Brompton Flaherty and Crumrine Investment Grade Preferred ETF (TSX: BPRF, BPRF.U). This fund invests in US preferred shares and is run by a team of top experts in this area. We added it a year ago. The fund did well initially but pulled back in the latest period. The result was a close to breakeven performance in its first full year in the portfolio. The monthly distribution is $0.104 per unit ($1.248 per year), which provides good cash flow.
Royal Bank of Canada Non-Cumulative 5-Year Rate Reset First Preferred Shares Series BO (TSX: RY.PR.S). This preferred was added 18 months ago. It produced a total return of 30% in its first year, but the shares gave back $0.70 in the latest period. It pays a quarterly dividend of $0.30 ($1.20 per year). The next reset date is the fall of 2023. If interest rate projections develop as expected the return on this preferred should increase at that time.
Granite REIT (TSX: GRT.UN). This REIT was spun out of Magna International in 2011 to take over the properties on which the company’s plants are built. It has since diversified its holdings and operates internationally. It was added to the portfolio in August 2020 but got off to a weak start. However, it has since turned around and gained $1.32 per unit in the latest six months. We received distributions of $1.51 per unit.
BCE Inc. (TSX, NYSE: BCE). BCE shares continued to gain in the latest period, adding $1.81. We received two dividends of $0.875 each.
Pembina Pipeline Corp. (TSX, NYSE: PPL). Pembina continued its rally, with the stock gaining $3.74 in the latest six-month period. The monthly $0.21 dividend remains intact. We received six payments totaling $1.26 per share in the latest period.
Brookfield Infrastructure LP (TSX: BIP.UN, NYSE: BIP). This limited partnership invests in infrastructure projects around the world. It continues to perform well for us, gaining $4.90 in the latest period. We received two distributions of US$0.51 each.
Firm Capital Mortgage Investment Corp. (TSX: FC). We added Firm Capital a year ago. The shares pay a monthly dividend of $0.078 ($0.936 a year), with a year-end top-up in December.
iShares S&P/TSX Capped Utilities Index ETF (TSX: XUT). This ETF invests in a portfolioof utilities stocks traded on the TSX. We’ve had some good gains here, but the units lost $1.08 in the latest period. We received distributions totaling about $0.51 per unit.
Innergex Renewable Energy Inc. (TSE: INE). We added this renewable energy stock in August 2020 at $22.59. It started off well but took a big hit in the latest period, losing 22.7%. It looks oversold at this price. The stock pays a quarterly dividend of $0.18 ($0.72 a year).
Cash. We moved the cash balance of $2,818.05 to EQ Bank’s retirement account, which was paying 1.25%. We earned $17.61.
Here’s a look at the RRIF Portfolio as it stood at the close of trading on Feb. 18. Note that commissions are not deducted, and that US 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 Feb. 18/22)
| Security | Weight % |
Average Cost |
Shares/ Units |
Book Value |
Current Price |
Market Value |
Retained Earnings |
Gain/
Loss % |
| XBAL | 6.2 | $26.10 | 200 | $5,220.00 | $26.56 | $5,312.00 | $98.60 | + 3.7% |
| XBB | 7.1 | $32.52 | 200 | $6,504.00 | $30.26 | $6,052.00 | $340.80 | – 1.7 |
| AGG | 6.5 | $118.68 | 50 | $5,934.00 | $109.87 | $5,493.50 | $155.20 | – 4.8 |
| BPRF | 6.0 | $26.65 | 200 | $5,330.00 | $25.38 | $5,076.00 | $249.60 | – 0.1 |
| RY.PR.S | 7.3 | $19.94 | 250 | $4,985.00 | $24.80 | $6,200.00 | $450.00 | +33.4 |
| GRT.UN | 6.4 | $78.22 | 60 | $4,693.20 | $90.77 | $5,446.20 | $268.76 | +21.8 |
| BCE | 12.5 | $48.96 | 160 | $7,834.15 | $66.12 | $10,579.20 | $416.91 | +40.4 |
| PPL | 8.0 | $47.13 | 160 | $7,540.50 | $42.23 | $6,756.80 | $493.60 | – 3.8 |
| BIP.UN | 21.6 | $24,37 | 240 | $6,194.85 | $76.25 | $18,300.00 | $793.92 | +208.2 |
| FC | 7.7 | $13.78 | 460 | $6,338.10 | $14.24 | $6,550.40 | $280.80 | + 7.8 |
| XUT | 6.0 | $25.61 | 170 | $4,354.20 | $30.02 | $5,103.40 | $129.22 | +20.2 |
| INE | 4.1 | $22.59 | 200 | $4,518.00 | $17.50 | $3,500.00 | $216.00 | -17.8 |
| Cash | 0.6 | $490.37 | $507.98 | |||||
| Totals | 100.0 | $69,934.37 | $84,877.48 | $3,893.41 | +26.0 | |||
| Inception | $49,910.30 | +77.9 |
Comments: It was a difficult period for the portfolio as the prices of fixed-income investments were hit by rising rates. As a result, our bond ETFs lost ground, as did our preferred share holdings. Fortunately, gains in Granite REIT, BCE, Pembina Pipeline, and Brookfield Infrastructure helped us to a small overall gain of 1.3% for the period.
As of Feb. 18, the total value (market price plus retained earnings) was $88,770.89 compared with $87,660.65 last August.
Since inception nine years ago, we have a cumulative total return of 77.9%. That works out to an average annual compounded rate of return of 6.61%. Our target is in the 5% to 6% range, so we are running slightly ahead of that goal.
Changes: We will use retained earnings to add to these positions.
RY.PR.S – We will add 20 shares at a cost of $496. We’ll use the $450 in retained earnings and take the balance of $46 from cash.
PPL – We have enough in retained earnings to add 10 shares at a cost of $422.30. That will bring our total to 170 shares and reduce retained earnings to $71.30.
BIP.UN – We will buy 10 more units for a cost of $762.50. We now have 250 units and retained earnings of $31.42. At this point, we are overweight in this position, but the units are performing well for us.
FC – We’ll buy another 20 shares at $14.24, for a total payout of $284.80. That will give us 480 shares. Our retained earnings will fall to zero and we’ll take the $4 difference from cash.
INE – The stock looks cheap at the current price. We will add 10 shares at a total cost of $175. That gives us 210 in total and leaves $41 in retained earnings.
We need to stop the bleeding in our fixed-income holdings. Accordingly, we will sell our positions in XBB, AGG, and BPRF for a total of $17,367.10. As well, we will sweep up all our remaining retained earnings and cash, which totals $1,515.19. That gives us a total of $18,882.29 to invest.
Banks do well during a period of rising interest rates, so we will buy 100 shares of TD Bank (TSX: TD) at $106.23 for a total cost of $10,623. The stock pays a quarterly dividend of $0.89 a share, to yield 3.35%.
EQ Bank has a limited time offer of a six-month GIC that pays an annualized rate of 2.05%. This will enable us to protect our capital, earn a small return, and reassess the situation at the time of our next review. We’ll invest $8,259.29 in this GIC, which is covered by deposit insurance.
Here is the revised portfolio. I will review it again in August.
Income Investor RRIF Portfolio (revised Feb. 18/22)
| Security | Weight % |
Average Cost |
Shares/ Units |
Book Value |
Current Price |
Market Value |
| GIC | 9.3 | $8,259.29 | 1 | $8,259.29 | $8,259.29 | $8,259.29 |
| XBAL | 6.0 | $26.10 | 200 | $5,220.00 | $26.56 | $5,312.00 |
| RY.PR.S | 7.5 | $20.30 | 270 | $5,481.00 | $24.80 | $6,696.00 |
| GRT.UN | 6.1 | $78.22 | 60 | $4,693.20 | $90.77 | $5,446.20 |
| BCE | 11.9 | $48.96 | 160 | $7,834.15 | $66.12 | $10,579.20 |
| PPL | 8.1 | $46.84 | 170 | $7,962.80 | $42.23 | $7,179.10 |
| BIP.UN | 21.5 | $27.83 | 250 | $6,957.35 | $76.25 | $19,062.50 |
| FC | 7.7 | $13.80 | 480 | $6,622.90 | $14.24 | $6,835.20 |
| XUT | 5.8 | $25.61 | 170 | $4,354.20 | $30.02 | $5,103.40 |
| INE | 4.1 | $22.35 | 210 | $4,693.00 | $17.50 | $3,675.00 |
| TD | 12.0 | $106.23 | 100 | $10,623.00 | $106.23 | $10,623.00 |
| Cash | 0.0 | $0 | $0 | |||
| Totals | 100.0 | $72,700.89 | $88,770.89 | |||
| Inception | $49,910.30 |
Previous updates
tii1704 | tii1816 | tii1904 | tii1916 | tii2003 | tii2016 | tii2104 | tii2116 | tii2204