Portfolio Update – September 2017

Time for the quarterly results review!

Highlights for this quarter:

  • I’ve increased my payroll contributions to take advantage of employer matching, which should result in some instant returns
  • TTM passive income came in at $6,500, beating the benchmark TTM passive income of $6,000 by 8%
  • Asset allocations are still out of whack

Let’s start off with the monthly performance summary:

This has been a rough quarter; in fact, the past five months have been rough. We have underperformed the benchmark since February, and in the tail end of the summer both the benchmark and my own total fund returns were in negative territory. That said, I did not let this deter me; if anything I went deeper into the market at that time and picked up additional shares of Aecon, Ryder, and Vanguard’s REIT index (VRE). As evidenced by the graph, in August we started to drift upwards again, and as of this quarter we are now exceeding the benchmark again.

One important thing to point out is that the margin portfolio is composed entirely of US stocks at this point; in fact: it is composed of a single US ETF, that of HYG (iShares high yield US ETF). I keep this ETF mainly as a way to generate passive US income for any time I travel to the US. You’ll notice that June, July, and August, had negative returns for that portfolio, and those negative returns were primarily a reflection of bonds dropping in the US at that time, as well as a weakening Canadian dollar against the US dollar. Finally, as expected the LIRA portfolio closely matched the returns of the benchmark — this makes sense since the LIRA and benchmark both track the Canadian Couch Potato strategy. That said, as the LIRA portfolio is only 25% of the aggregate portfolio value, it is only a small contributor to overall returns.

On a trailing twelve month view, we are still relatively in positive territory. We have lost the monstrous 20% TTM returns from earlier this year, but are still coming in at a respectable 7.5%, which is virtually a match to the benchmark. Again, these aggregate TTM returns are being pulled down by the US only margin portfolio.

Of course, month over month returns are one thing, but as an income investor, total passive income is the key metric. The following two graphs show the story there:

The rolling month over month passive income is not that impressive: we have lost to the benchmark virtually every month. However, as discussed last time, this is mainly an artifact of timing. Illustrated in the second graph, TTM income is still relatively strong, and beating the benchmark by ~$500.

You’ll notice that there is a bit of a discrepancy from the March report: in March we reported less than $6,000 in TTM income, but now that number has been exceeded. I had inadvertently excluded some passive income from the certificated portfolio, and from my work DC pension plan, which adds to overall tax-deferred income. The latest numbers paint a rosier picture. That said, I also mentioned a concern with passive income dipping due to a large withdrawal in 2016 to help purchase our new home — that is still a going concern, as we are nowhere near the $8,500 TTM passive income that was occurring in 2015.

Finally, there is the issue of portfolio allocation:

While I have been aggressively investing any spare capital into my tax-free account, and purchasing iShares REIT ETF–VRE.TO–I have not made much of a dent in the allocation. I am still grossly over-allocated to the equity sector, and as such the focus will continue to be on building up the real estate exposure of the portfolio. I plan on doing this by continuing to allocate spare capital into VRE.TO, H&R REIT, and RIOCAN, as the opportunities arise.

Closing Remarks…

While many Canadian’s experienced a stellar summer, they did not experience stellar markets. However, even in down times the important thing is to stay the course, and take advantage of market downticks if you can, by deploying any excess funds you have into the market while prices are suppressed.

Onwards and upwards!

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