Portfolio Updates – June 2018


  • Lack of Aecon buy-out triggered large drop
  • TTM income still > $8M which puts us on track to meet our 2018 goal
  • Asset allocation still skewed towards equities

Monthly Performance Summary

As I mentioned in my last update, I purchased some GE call options which expire in January 2020. Those options continue to be the biggest drag on the portfolio. Other than that, the Canadian Government blocked the potential takeover of Aecon which I spoke of in a previous post. When the acquisition was first announced Aecon surged 22% in my portfolio, and since then it has dropped back down to “normal levels”. So, while my net gain on Aecon is practically flat, I did experience a material drop in the portfolio in May.

Interestingly, on a month over month basis both the LIRA and EPSP portfolios are lagging the benchmark, which is odd because those two portfolios are couch potato portfolios, as is the benchmark; one would think that they should be tracking each other. However, the variance could be attributed to a few factors:

The LIRA has not been rebalanced in some time, and there is now some tracking error. The portfolio is overweight a few percent in VXC and underweight 5% in VAB. There is also a growing cash position. The portfolio is due for a manual rebalancing soon.

The EPSP portfolio is combined couch potato and shares of my employer through the stock purchase plan. The stock purchase plan is approximately 33% of the portfolio so the remaining 67% is couch potato. But that means that the 75% equity is skewed, and not a perfect tracker to the couch potato.

On a TTM perspective we have been diverging more and more away from the benchmark. The benchmark TTM for June 2018 is 9.96% whereas the total fund is only 3.77%, a whopping 6% spread. Again, a large percentage of this can be attributed to the material decline in the margin portfolio due to the GE options. The other factor is that the certificated portfolios contain Riocan, and H&R REIT, both of which cut their DRIPs earlier this year, resulting in a drop in both holdings. Since REITs are large proportion of the certificated portfolio, insofar as those positions drop, the overall portfolio drops, increasing drag on TTM returns.

Passive Income

As always, passive income is the primary objective of my portfolio.

Passive income has been “okay” the past few months. As expected, non-quarter months (i.e. January, February, April, May) beat the benchmark, but this leveled out on the quarter months (March, June). The reason for this is that VCN and VXC, which are key components of the benchmark, only pay realized returns once a quarter, but the actual fund has dividend payments and distributions scattered throughout the year. But what we really want to see is the TTM passive income, in the following chart.

The good news here is that I am still beating the benchmark. All things being equal, I would rather beat the benchmark on passive returns than on total returns, reason being that I am creating an income fund, not a capital gains fund. Based on that metric, TTM for the benchmark was around $6,750, whereas our fund broke the $8,000 mark. More precisely, I gained 21% more passive income than the benchmark. All in all, that is an impressive feat in my view.


Last but not least, allocation remains a key point of concern.

Equity is still a dominant force in the overall fund, weighing in at north of 70%, well above the 55% target. For the next six months I will be focusing on increasing real estate exposure:

  • This will add some more balance to the portfolio
  • From a passive income perspective, REITs provide a better opportunity than fixed income
  • REIT ETFs are a cost effective addition to the overall fund since I can buy ETFs through Questrade for next to no commissions.

Closing Remarks

The first six months of the year have not been stellar, but they have not been necessarily bad either. At an aggregate, the losses I experienced were expected (e.g. Aecon dropping, GE dropping). But, as a long-term investor I am not overly concerned. I have literally decades for Aecon to increase back in value, and my GE options have over 16 months before expiry which gives plenty of runway for them to recoup any paper losses.

A bigger concern is passive income over the next six months. 3% of the portfolio was reserved to pay off my car in August of this year (the final “balloon payment” from my finance arrangement with the car dealership), which will mark a material loss on the liquid portion of the portfolio since those funds were in my TFSA account. That drop will also remove $250 of passive income from the overall portfolio; not a large amount but it does represent 3% of overall passive income.

As it stands, the TTM passive income positions me to meet my 2018 passive income goal of $8,100/year. However, if we take 3% off of that, I will miss the goal. My hope is that by investing aggressively in REITs to re-balance the portfolio, the higher yield on REITs will make up for the lost passive income.

Onwards and upwards!


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