6.3%
RRIF PORTFOLIO BOUNCES BACK
By Gordon Pape
A RRIF portfolio differs from an RRSP in two fundamental ways. First, it should be lower risk. RRIF investors are in their retirement years, and preservation of capital becomes more important as a result. There may not be time to recover from a major loss.
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.
Our RRIF portfolio was created in February 2013 with an initial value of $49,910.30. 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 August. Prices are as of the close on Feb. 19.
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 were compounded. The GIC matured this month, with a value of $15,182.08.
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. Yields have been rising recently, which is depressing bond prices. The units are down $1.44 since our last review. We received six monthly distributions totaling $0.421 per unit.
iShares Core U.S. Aggregate Bond Fund (NYSE: AGG). This is similar in concept to XBB except it tracks the performance of the broad U.S. bond market. It has been under the same pressure as XBB and is off US$2.84 since the last review. We received six monthly distributions for a total of US$1.112.
Royal Bank of Canada Non-Cumulative 5-Year Rate Reset First Preferred Shares Series BO (TSX: RY.PR.S). This preferred was added last August. It pays a quarterly dividend of $0.30 ($1.20 per year). The units are up $3.62 in the six months since the recommendation and we received two dividends totaling $0.60 per share. Total return for the period was 21.2%.
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 last August but is off to a weak start, having lost $2.63 per unit in the six months since. Part of that loss was offset by distributions of $1.468 per unit.
BCE Inc. (TSX, NYSE: BCE). BCE shares continue to struggle, losing $2.56 in the latest period. The good news is the company is increasing its dividend by 5.1%, to $0.875 per quarter.
Pembina Pipeline (TSX, NYSE: PPL). Pembina shares took a big hit last March. The stock rallied somewhat to the mid-$30s and remained at that level during the latest period. The company has repeatedly reassured investors that it would retain its monthly dividend of $0.21 per unit. We received 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 $8.07 in the last period. The distribution is increasing by 5% this year.
Brookfield Infrastructure Corporation (TSX, NYSE: BIPC). This was spun out of BIP.UN last year. We received one share of the new company for every nine partnership units, so we ended up with 25 shares. The price is up almost $10 since the last review and the dividend is being increased by 5%.
iShares S&P/TSX Capped Utilities Index ETF (TSX: XUT). This ETF invests in a portfolio of utilities stocks traded on the TSX. It was up $2.33 in the latest period, and we received distributions totaling $0.825 per unit.
Innergex Renewable Energy (TSE: INE). We added this renewable energy stock last August at $22.59. It now trades at $25.78 for a gain of $3.19 in the past six months. The stock pays a quarterly dividend of $0.18 ($0.72 a year). We had a net gain of 15.7% in the period.
Cash. We kept the cash balance of $908.33 in a high-interest savings account with Renaissance, which was paying 0.3% at the time. That’s the best rate we could find for a RRIF-eligible account. We earned a grand total of $1.36! Hardly worth the effort.
Here’s a look at the RRIF Portfolio as it stood at the close of trading on Feb. 19. The market value of the GIC includes all compounded earnings paid to maturity. 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 Feb. 19/21)
| Security | Weight % |
Average Cost |
Shares/ Units |
Book Value |
Current Price |
Market Value |
Retained Earnings |
Gain/
Loss % |
| MAXA GIC | 19.2 | $13,418.75 | 1 | $13,418.75 | $13,418.75 | $15,182.08 | $0 | +13.1 |
| XBB | 8.2 | $32.52 | 200 | $6,504.00 | $32.29 | $6,458.00 | $258.80 | + 3.3 |
| AGG | 7.3 | $118.68 | 50 | $5,934.00 | $115.84 | $5,792.00 | $55.60 | – 0.01 |
| RY.PR.S | 7.4 | $19.94 | 250 | $4,985.00 | $23.56 | $5,890.00 | $150.00 | +21.2 |
| GRT.UN | 5.7 | $78.22 | 60 | $4,693.20 | $75.59 | $4,535.40 | $88.08 | -0.01 |
| BCE | 10.4 | $47.89 | 150 | $7,183.05 | $55.00 | $8,250.00 | $525.51 | +22.2 |
| PPL | 6.5 | $47.83 | 150 | $7,196.90 | $34.36 | $5,154.00 | $434.00 | -22.4 |
| BIP.UN | 20.3 | $24,37 | 240 | $6,194.85 | $67.07 | $16,096.80 | $304.32 | +111.0 |
| BIPC | 2.5 | $50.12 | 25 | $1,253,00 | $77.72 | $1,943.00 | $36.38 | +57.1 |
| XUT | 6.0 | $25.27 | 160 | $4,043.20 | $29.53 | $4,724.80 | $281.76 | +23.8 |
| INE | 6.4 | $22.59 | 200 | $4,518.00 | $25.78 | $5,156.00 | $72.00 | +15.7 |
| Cash | 0.1 | $51.23 | $52.59 | |||||
| Totals | 100.0 | $65,975.18 | $79,234.67 | $2,206.45 | +23.4 | |||
| Inception | $49,910.30 | +63.2 |
Comments: After a rough first half of 2020 and some sweeping changes last August, the RRIF portfolio rebounded with a gain of 6.27%. As of Feb. 19, the total value (market price plus retained earnings) was $81,441.12 compared to $76,635.07 in August.
Since inception eight years ago, we now have a cumulative total return of 63.2%. That works out to an average annual compounded rate of return of 6.31%. Our target is in the 5% to 6% range, given that much of the portfolio has been in GICs and bonds. At this point, we are running slightly ahead of that goal.
Changes: Our GIC has matured, leaving us with $15,182.08 in cash and a conundrum. According to Ratehub.ca, the best five-year rate offered for a registered plan is 1.8% from Oaken Financial. That’s unacceptably low, more so because I believe rates will increase significantly over the next five years. If we took this rate we’d be locked in.
That’s not the only problem. Our exposure to Brookfield Infrastructure has become too high. We can reduce that by selling our position in BIPC, which will give us $1,979.38. Combine that with the GIC proceeds and we have $17,161.46 to deploy.
In normal times, we’d add another bond ETF or buy more units in XBB and/or AGG. But with interest rates moving higher, that’s a money-losing proposition right now. So, here’s what I suggest.
Buy 450 shares in Firm Capital (TSX: FC) at $13.75 for a cost of $6,187.50. This company has been a recommendation of this newsletter since 2004 and has been a dependable performer. The shares pay a monthly dividend of $0.078 ($0.936 a year), with a year-end top-up in December. There is minimal capital gains potential here, just steady cash flow for your RRIF.
Buy 200 units of iShares Core Balanced ETF Portfolio (TSX: XBAL) at $26.10, for a cost of $5,220. This is a fund of funds, investing in eight basic iShares funds, with a mix of about 60% stocks, 40% bonds. This move does increase our bond exposure but with an equity position to offset that. This fund changed its mandate in December 2018 so results prior to that should not be considered in assessing historical performance. It has done well so far in 2021, up 2.4% to Feb. 18. The trailing 12-month payout is $0.521, for a yield of 2%.
Buy 200 units of Brompton Flaherty and Crumrine Investment Grade Preferred ETF (TSX: BPRF, BPRF.U) at $26.65 for a cost of $5,330. This fund invests in U.S. preferred shares and is run by a team of top experts in this area. There is not much capital gain potential here but the monthly distribution of $0.104 per unit ($1.248 per year) provides excellent cash flow with a yield of 4.7%.
The total cost of these purchases is $16,737.50. That leaves $423.96, which we will add to our cash account.
One more move. We will use retained earnings to buy 10 more shares of Pembina Pipeline at $34.36, for a total cost of $343.60. This will increase our position to 160 shares and reduce retained earnings to $90.40.
After all these transactions, we now have $2,303.02 in cash and retained earnings. We will move that money to Outlook Financial, which is paying 1.2% on a RRIF-eligible account.
Here is the revised portfolio. I will review it again in August.
Income Investor RRIF Portfolio (revised Feb. 19/21)
| Security | Weight % |
Average Cost |
Shares/ Units |
Book Value |
Current Price |
Market Value |
Retained Earnings |
| XBAL | 6.6 | $26.10 | 200 | $5,220.00 | $26.10 | $5,220.00 | $0 |
| XBB | 8.1 | $32.52 | 200 | $6,504.00 | $32.29 | $6,458.00 | $258.80 |
| AGG | 7.3 | $118.68 | 50 | $5,934.00 | $115.84 | $5,792.00 | $55.60 |
| BPRF | 6.7 | $26.65 | 200 | $5,330.00 | $26.65 | $5,330.00 | $0 |
| RY.PR.S | 7.4 | $19.94 | 250 | $4,985.00 | $23.56 | $5,890.00 | $150.00 |
| GRT.UN | 5.7 | $78.22 | 60 | $4,693.20 | $75.59 | $4,535.40 | $88.08 |
| BCE | 10.4 | $47.89 | 150 | $7,183.05 | $55.00 | $8,250.00 | $525.51 |
| PPL | 6.9 | $47.13 | 160 | $7,540.50 | $34.36 | $5,497.60 | $90.40 |
| BIP.UN | 20.2 | $24,37 | 240 | $6,194.85 | $67.07 | $16,096.80 | $304.32 |
| FC | 7.8 | $13.75 | 450 | $6,187.50 | $13.75 | $6,187.50 | $0 |
| XUT | 5.9 | $25.27 | 160 | $4,043.20 | $29.53 | $4,724.80 | $281.76 |
| INE | 6.5 | $22.59 | 200 | $4,518.00 | $25.78 | $5,156.00 | $72.00 |
| Cash | 0.5 | $476.55 | $476.55 | ||||
| Totals | 100.0 | $68,808.85 | $79,614.65 | $1,826.47 | |||
| Inception | $49,910.30 |
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