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!

Portfolio Update – March 2017

Quite some time since I last posted, and the markets have been a bit of a roller coaster. The last of my statements have finally come in, and I’ve been able to compile the first quarter results for my portfolio.

The total fund T3M (trailing three month) return was 4.94%, dragged down primarily by my EPSP portfolio.. While this portfolio is a relatively small amount (less than 1% as of this quarter), it is a visual drag, as illustrated by the huge negative orange bars in the graph. The benchmark T3M was 4.06%, so I am still beating my benchmark, which is the ultimate goal (otherwise, why would I bother doing the work of picking my own investments?).

As I am an income oriented investor, the following graphs are somewhat more important, as they illustrate the going concerns for the portfolio (e.g. a stable, growing, cashflow).

Passive income for the quarter came in at 7.70% under the benchmark. How much of this is due to timing, and how much is due to selection, is a different story. The income power of the portfolio is something that I am watching more closely.. I liquidated a large percentage of the portfolio in May 2016 to purchase our new house, so by the next quarter, we will see what the one year run rate of passive income is. As you can see from the charts, passive income has been generally trending downward, and March was the first month that we did not break the $6M mark in over a year. This does concern me, especially since we broke the $7M mark in 2016 at this time.. But given the percentage of the portfolio that was liquidated, I am not surprised.

Presently the portfolio is in the accumulation phase, as I push as much spare cash as I can into my various accounts, to start building up a sufficient capital base to generate large amounts of passive income again. That said, this build-up will also provide me with an opportunity to revisit my allocations:

Equity exposure is still in the high seventies (~75%), which is surprising since I have been pushing virtually all spare cash into real estate ETFs (primarily VRE.TO) to increase my real estate exposure. The lack of relative growth in real estate is not due to real estate performing poorly, but it is a reflection of equities performing relatively stronger than the real estate sector.. While I have invested an additional 2% of capital in real estate, real estate itself went down by less than 1%…which means that even though I have put capital in, the equity growth is overshadowing the real estate growth! I am not going to look a gift horse in the mouth, but this does mean that I will continue to move more capital into real estate in the coming months, primarily through VRE.TO, HR-UN.TO, and REI-UN.TO.

Onwards and upwards!

Portfolio Update – January 2017

Overall, I have been pretty happy with the January performance when observing paper (i.e. non-realized) gains, but passive income fell short when compared to the benchmark.

Total fund returns were 1.26%, vs. the benchmark of 0.52%, which represents a more than 2× gain over the benchmark! This is also evident when we look at the trailing twelve month performance:

Here, you can see that on a trailing twelve month basis, total fund is up 15.79% vs. the benchmark 9.99%, which represents a 58% differential!

In absolute terms, the biggest gainers were Brookfield, Philip Morris, and BMO, which accounted for 54% of the overall gains in the period. On a percentage gain basis, Sun Life, Bank of Nova Scotia, and Telus, topped the list in gaining 45.42%, 23.49%, and 17.30% respectively.

However, while the non-realized gains were impressive, as I mentioned above, passive income was lacking.

Overall, the benchmark passive income was $1,811.80, and my own passive income was less than half of that; in fact, my passive income came in at 60.50% under the benchmark. But, this was to be expected. Recall from my December 2016 update:

That said, I expect to see a huge spike in January 2017 in the benchmark, mainly due to timing. You’ll notice that December had a very low benchmark income number, and generally speaking, March, June, September, and December, should be roughly equal in benchmark passive income. Because my benchmark is composed of ETFs, those ETFs did not pay anything in December 2016, and instead paid many of their distributions in January 2017 — so any missed income from December should catch up to us in 2017.

So, the spike in January 2017 was to be expected, but I did not expect the spike to be so drastic. This huge upset also affected the TTM passive income numbers:

Not quite as bad as the monthly results, but on a trailing twelve month basis, we are still running at 1.97% less than the benchmark. As I have become more aggressive in investing idle cash in ETFs, I expect this trend to reverse in the coming months.

Finally, starting with this post I will be monitoring my asset mix compared to my target asset mix. As to be expected, I am very heavily weighted in pure equities. You’ll also notice that the majority of my funds are tied up in my RRSP and LIRA. As part of my 2017 goals I mentioned increasing TFSA contributions on the order of $20,000, and I’ll also use these contributions to pair down equity exposure, systematically increasing my fixed income and real estate exposure through ETFs.

Finally, in a previous entry I mentioned that I was running severely over budget for 2017, when comparing my projected spend to my actual income. In fact, I was projecting a deficit of $14,000. To that end, I have been rigorously monitoring my spending habits, and I’m happy to say that in January I came in at 3.51% under budget. This is not a significant amount, but anything under budget is a gain in my view.

Month Actual Spend to Budget Variance (lower is better)
January 2017 -3.51%

A big chunk of this decrease was due to not having to buy gas in January (hooray for public transit!), and cutting down on entertainment expenses (e.g. music, movies, and books). However, February is looking a little bleak, as some expenses that I avoided in January will definitely come up in the next month (e.g. I will need to buy gas in February!).

And there you have it: the first update for 2017. How did everyone else do?

Onwards and upwards!

Portfolio Update December 2016 – $620 realized returns

My discount brokerage, BMO InvestorLine, only released statements to its clients on January 23; so the update for December 2016 has been incredibly delayed. But was the delay worth it? Given the data we have at hand, I would say yes! Key highlights:

  • Passive income of $620, 350% over our benchmark
  • Total passive income for 2016 of $6,627, 29% over our benchmark
  • Total fund returns for December 2016 of 2.7% vs. benchmark of 1.2%
  • Total fund returns for 2016 of 11.0% vs the benchmark 7.8%

Some stellar numbers! Let’s see how this looks on the graphs.

Monthly Returns ending 2016-12

First up, you’ll notice that there is a new portfolio added, that of EPSP. I recently became a full-time employee of a major FI again, mainly to maintain stability of income, and now have access to their Stock Ownership program. This gives me a great way to receive commission free trades on a regular basis, directly debited from my pay, which results in regular, periodic investments into my tax deferred account. The EPSP portfolio is also responsible for the huge retroactive spike in November 2016. Overall, 4 out of 6 of my portfolios beat the benchmark, with only my LIRA and EPSP lagging behind. Overall however, the entire portfolio for December brought in a 2.7% return, whereas the benchmark returned only 1.2%: I effectively doubled the benchmark, and then some.

Monthly Returns TTM Returns ending 2016-12

On a trailing twelve month perspective (i.e. all of 2016), I am generally happy with the results. Because I am heavily weighted in Canadian stocks, I did not experience as much of an updraft as some US investors since Trump won the election in November 2016, but overall my portfolio has been on a positive uptrend all year, ending the year at +11.0%, whereas the benchmark is only up 7.8% for the year; my portfolio beat the benchmark by over 40% in 2016. One point of pride: each and every one of my portfolios beat my benchmark; since each portfolio has a slightly different mandate, this is a great feat, which I hope to continue in 2017.

Of course, I am a dividend investor, so passive income is one of my key measures of success. What follows are the passive income returns for December 2016, as well as for the year.

Passive Income ending 2016-12

Passive Income TTM ending 2016-12

These graphs look different from previous ones, but I believe they provide a simpler comparison of actual vs. benchmark income. For December we brought in over $600 in income, vs. the benchmark of $138. For all of 2016, we brought in $6,267, whereas the benchmark only brought in $4,859; a whopping 29.0% increase for the year.

That said, I expect to see a huge spike in January 2017 in the benchmark, mainly due to timing. You’ll notice that December had a very low benchmark income number, and generally speaking, March, June, September, and December, should be roughly equal in benchmark passive income. Because my benchmark is composed of ETFs, those ETFs did not pay anything in December 2016, and instead paid many of their distributions in January 2017 — so any missed income from December should catch up to us in 2017. A similar event happened in October 2016, where the benchmark returned zero passive income, but there was much higher passive income in November, when compared to July and August.

With the year at an end, I have also been able to calculate my forward income. In 2017, based on current holdings and current rates, I expect to generate $6,800 in dividend income, roughly 8.50% higher than all of 2016. As I mentioned in my investment goals post, I wish to increase my total income by 5.00%, which means I have to generate another $340 in passive income to make that goal. I feel this should be a realistic goal given the current environment, assuming I do not have to liquidate any holdings in the near term.

So there you have it: F2016 in a nutshell!

Onwards and upwards!

Investment Goals: 2017

It’s that time of year where we start looking at investment goals for the new year.

I didn’t really have any goals F2016, except to become a member of thediv-net.com, which I’m happy to say that I was successful in accomplishing! I also mentioned in several posts in F2016 that up until recently I had lost focus on my investment portfolio. Well, for F2017, I plan on changing that trend.

To that end, the goals!

Goal 1: Increase TFSA Contributions

I have been an infrequent contributor to my TFSA for the past 2+ years. To pay off my business school loan, and to purchase a new house with my family, I made some significant withdrawals. Taking into account the $5,500 contribution limit for F2017, I have a little over $40,000 in contribution room in my TFSA. My goal for F2017 is to contribute to at least 50% of that limit, or $20,000.

Goal 2: Minimize Taxes

My investments fall into five investment books: a taxable margin account, a tax-free account, a tax deferred account, a certificated account, and a LIRA. My second goal for F2017 is to minimize taxes by consolidating investments into my tax deferred and tax-free accounts, where it is sensible to do so.

Selecting which investments go into tax sheltered accounts is not a trivial task. On the one hand, moving investments from my taxable account will defer any taxes payable (in the case of my RRSP), or eliminate taxes completely (in the case of my TFSA). However, tax sheltered accounts have a disadvantage in that any losses cannot be used to offset capital gains. This means that I will have to take a close look at the investments to ensure they are good fit to go into an account where I am unable to do any tax loss harvesting. Put another way: I have to ensure I am comfortable (financially, and psychologically) to move investments, confident that they will not go down in value to the point where I sell them at a loss.

That said, Goal 1 and Goal 2 are complementary: by moving investments from my taxable margin account to my tax-free account, I can easily come within throwing distance of Goal 1.

Moreover, by moving my US investments from my margin account to my tax deferred RRSP, I will reap an immediate 15% cost avoidance: US based stocks are not subject to the (15%) withholding tax on US dividends, which means I will receive the full amount of dividends from my US holdings.

Goal 3: Rebalance my Total Fund to my Target Allocation

When I started investing in earnest in F2012, I had a very rigid target allocation. The past few years I have deviated very far from that. So my third goal (and arguably the most important) will be to revisit my investment policy statement, and determine the appropriate asset mix for my investments.

Goal 4: Increase Passive Income by 5%

As I am a dividend investor, passive income is my primary goal for investing. Following my December 2016 results, I will be baselining my F2016 income, with a goal of beating that income by 5% this year.

I plan on accomplishing this goal through three key strategic activities:

  1. Re-allocation. I know for a fact that my portfolio is overweighted in some areas. Once I complete Goal 3, I will be reallocating funds to other holdings, to increase exposure to some of my more successful dividend holdings.
  2. DRIP Investing. I plan on increasing exposure to DRIP investments, as they provide a frictionless vehicle for quickly growing dividend income.
  3. TFSA Contributions. As mentioned with Goal 1, I plan on increasing my TFSA exposure. This increase will undoubtedly bring more passive income into the total fund.

Goal 5: Update and Expand Investment Research

Many of my investment research posts are horribly out of date. As the calendar year is starting, many companies I follow will be releasing their annual results in the coming months. I plan on updating all of the companies I follow based on F2016 results. Moreover, I am targeting to analyze at least four new companies this year.

And there you have it; the F2017 goals! I would love to hear what everyone else’s goals are for F2017.

Onwards and upwards!

Portfolio Update – November 2016

Before I begin, there was a minor issue with the October update benchmark numbers. I had made an error in the benchmark passive income: Vanguard’s VAB declared an October dividend, but the actual payment date was in November 2016. This means that my actual income in October surpassed the benchmark income by an even wider margin.

I’ll jump straight to the chase and say that November was a disappointing month. Odd, because following the winning of president-elect Trump, US markets were on a tear. Unfortunately, my Canadian holdings did not do as well.

Portfolio Monthly Returns as of November 2016

The benchmark return was 0.912%, but my total fund was -0.413%, more than a 1% difference. My LIRA portfolio came in at a respectable 0.902%, and the 0.010% variance I can attribute to tracking error. The TFSA portfolio dominated at +2.522%, but my margin account was pummeled at -4.918%! Inspecting the margin account, this somewhat makes sense: it is 2/3 in Canadian equities, which came in at -8.898%, which was the primary source of the losses.

But, as a long-term buy and hold investor, you’ve got to take the bad months with the good months. My TTM is still exceeding the benchmark:

Portfolio TTM Returns as of November 2016

Total fund TTM is 7.989%, while the benchmark is 6.705%: so when you take into account all ups and downs over the past year, we are still doing pretty well.

Of course, let’s remember that I am a dividend investor, and that is where I count the majority of my returns. November was a good month: total income was practically double the benchmark income (97.514% more to be exact), and TTM income is also exceeding the benchmark, by 7.918%.

Portfolio Monthly Income as of November 2016

Portfolio TTM Monthly Income as of November 2016

As I have just started to aggressively focus on my portfolios again, I don’t expect to have stellar returns in the short-term. However, as I plan out my F2017 goals, I expect that to change.

Onwards and upwards!