Portfolio Update – September 2016Posted: October 22, 2016
An investment portfolio is like a garden: you have to constantly maintain it to watch it grow. Otherwise it becomes overrun with weeds, and ultimately turns into an utter mess. Such is the state of my own portfolio…I stopped monitoring/caring for it on a regular basis in 2015, and this is the first month I have sat down to really review it, and see where it sits. Reviewing the historical performance against some benchmarks, things are dreadful. But, with some tender loving care, I’m going to right the ship and get back on the road to successful returns.
Before I begin, a note on benchmarking. I consider the Canadian Couch Potato, specifically the “Assertive” portfolio, as my benchmark. The reason being, if I had zero time to look at my portfolio, this is the portfolio I would assemble, rebalancing twice annually. In building some comparison returns, I have built a parallel portfolio as follows, based on the Assertive portfolio:
- Initial portfolio value is $100,000, with a seed period of May 2014.
- Because the model portfolio uses VXC, which only came into existence in mid-2014, the first few months of the portfolio used 75% VCN and 25% VAB, and starting in July 2014, 50% VCN, 25% VAB, and 25% VXC. Realistically this no bearing on current analysis or future analysis, as July 2014 is more than twelve months back, and thus out of range for TTM calculations.
- The portfolio is rebalanced every January and July.
- Dividends are retained until the next rebalancing period.
- Each period of rebalancing incurs $59.70 in commissions: at $9.95/trade, this is for three sells, and three buys. This is representative of what I would pay at my own discount brokerage. I know that I may not do three outright sells and/or three outright buys (i.e. I may only add to a position), but this simplifies compiling the benchmark.
Moreover, because I am a dividend investor, I track a separate portfolio which projects what I would receive in dividends if my entire portfolio was invested in the Assertive portfolio. E.g. if my portfolio value were $500,000 in a given month, what the dividend income would be from the Couch Potato’s Assertive portfolio if I had the $500,000 invested in the appropriate proportions of VAB, VXC, and VCN, based on dividends for each of those ETFs for that month.
With a discussion on benchmarks out of the way, lets see the portfolio performance for September 2016, and the TTM (trailing twelve months) up to and including September 2016:
In total, I have five portfolios:
- Margin. My regular trading account. This is a non-registered account where I do the majority of my trading once my RRSP and TFSA are maxed out. I also have some US companies in here for US dividends, which I use to pay for any US purchases.
- RRSP. My RRSP account, which is the bulk of my portfolio. Locking in the majority of my dividend income in this portfolio is a smart move, since it prevents me from spending it or using dividends from those companies for day to day spending.
- TFSA. My tax free savings account portfolio, which I typically contribute to once my RRSP is maxed out.
- Certificated. This portfolio is relatively small, and is where I keep all of my certificated holdings. This portfolio is where I do all of my DRIP investing. All positions in this portfolio are registered directly in my name, and all companies hold fractional shares due to the nature of DRIP investing. Moreover, they are held directly at Computershare or CST Trust Company. Finally, I have regular monthly contributions to these positions via direct debit from my banking account; this is a great feature of DRIPs because I can purchase shares on a regular basis commission free, and take advantage of dollar cost averaging.
- LIRA. I have a locked in retirement account for when I cashed out my pension at one of my previous employers.
Each portfolio has a varying mix of sectors, and I also track the total fund return which is the total return of all portfolios. This is my main measure of success. Reviewing the above, my total fund on a monthly basis has been near or above the benchmark portfolio, with a dip in the most recent periods. You’ll also notice a big drop in the certificated portfolio in December 2015, mainly driven to a drop in Telus during that period. On a trailing twelve months perspective, total fund has been relatively good, picking up post-March 2016 after I started selling things off to pay for our new house: I had sold a number of laggards during that period, which boosted overall returns on a go-forward basis. The above also includes liquidating a large percentage of my portfolio to buy a new house earlier this year, as well as paying off my student loans in late 2015.
With regards to dividend income, these two charts tell the story:
You’ll notice that the income from the benchmark portfolio is somewhat lumpy; this is because the equity ETFs (VXC, VCN) only pay a dividend quarterly, whereas the fixed income ETF—VAB—pays monthly. Because of this, every quarter my total fund passive income is relatively lower than the benchmark. However, you’ll notice that the trailing twelve month total passive income is consistently relatively higher – this shows that overall, even though on some quarters I am lagging behind my benchmark, on an annualized basis (i.e. TTM) I am still ahead. Ergo, to date my own dividend choices have been better than those of the benchmark. The drop in relative excess dividend income starting in December 2015 was due to the selloffs mentioned above for paying down student loans, and a new house purchase.
Reviewing the historical results, things aren’t as great as I would like them to be, but they aren’t horrible either. A big challenge was that I sat on a large pile of cash and didn’t even do something as simple as investing that cash in a broad market index fund to generate some returns; it sat there as cash, generating literally 0.00% return for 6+ months! But now that I am refocusing, I’m looking to right those previous errors.
Here’s hoping October shapes up to be a little better.
Onward and upwards!