Passive Income Update for August 2019: 4.9% YoY Increase, 34% YoY TTM Increase

Our family was on vacation in August visiting Alberta—beautiful province!!—but while we were relaxing, the portfolio was still churning out returns. For the month of August, $509 was received in passive income. The drop relative to previous months can be attributed to this being a “non-quarterly month”: many companies pay quarterly dividends, and only a handful of my holdings pay monthly dividends/distributions.

Ticker Company Previous Year Return Current Year Return Variance Variance % Comments
BMO.N Bank of Montreal $47.50 ($47.50) (100.0%) Moved to CAD account, so captured I BMO.TO
BMO.TO Bank of Montreal $228.48 $296.64 $68.16 29.8%
C.N Citibank $4.11 $4.75 $0.65 15.7%
CIG50221.TO Sentry Small/Md Cap Income Fund A $40.02 $40.02 100.0% Replaces NCE721.TO
DII-B.TO Dorel Industries Class B $20.76 ($20.76) (100.0%) Paid in July 2019
EMA.TO Emera $25.73 $28.25 $2.52 9.8%
HYG.N iShares iBoxx $ High Yield Corporate Bond Fund $11.00 $11.02 $0.02 0.2%
NCE721.TO Sentry Small/Md Cap Income Fund $39.00 ($39.00) (100.0%) Replaced by CIG50221.TO. In 2018 the June transaction was delayed to July, so July 2018 is overstated.
VAB.TO Vanguard Canadian Aggregate Bond Index $64.84 $67.36 $2.52 3.9%
VRE.TO Vanguard MSCI REIT $30.75 $45.59 $14.84 48.3%
WRK.N WestRock $11.24 $12.12 $0.89 7.9%
XBB.TO iShares DEX Universe Bond Fund $3.29 $3.33 $0.04 1.2%
TOTAL $465.93 $509.09 $43.15 9.3%

Overall the trend is still an increase compared to this time last year, but for a true comparison some adjustments need to be made. First, last year Dorel Industries paid its dividend in July whilst this year it paid its dividend in August. Second, some of my shares in BMO were in my US$ brokerage account at this time last year, so I could receive the dividends in USD (which subjected me to currency exchange risk); I’ve since moved those shares to my CAD$ brokerage account. When I adjust (removing Dorel, merging the BMO line entries) to do a true year over year comparison, on a ticker-by-ticker basis I am actually up 9.3%.

On an even better note, trailing twelve-month (TTM) income was $9,600 last month, but with the returns this month and the increases throughout the year, TTM is now $9,700. That gain represents a 1.1% increase month to month, and even more impressive: an increase of 34% over the trailing TTM income in August 2018!

Onwards and upwards!

 


Passive Income Update for July 2019: a 24.6% YoY Increase

Continuing the trend of regular posting, I’ve finished compiling my July passive income update. Year over year, the portfolio was up 24.6% over July 2018, with some caveats.

Ticker Company Previous Year Return Current Year Return Variance Variance % Comments
ACO-X.TO ATCO Ltd. $75.32 $80.96 $5.64 7.5%
ARE.TO Aecon Group $31.25 $36.25 $5.00 16.0%
BNS.TO Bank of Nova Scotia $14.44 $15.13 $0.69 4.8%
CBO.TO iShares 1-5 Year Laddered Corp. Bond ETF $8.20 $0.00 ($8.20) (100.0%) Sold
CIG50221.TO Sentry Small/Md Cap Income Fund A $39.95 $39.95 100.0% Replaces NCE721.TO
DII-B.TO Dorel Industries Class B $10.39 $10.39 100.0%
HYG.N iShares iBoxx $ High Yield Corporate Bond Fund $11.43 $11.57 $0.14 1.2%
LGT-B.TO Logistec Class B $9.08 $9.98 $0.90 9.9%
NCE721.TO Sentry Small/Md Cap Income Fund $77.77 $0.00 ($77.77) (100.0%) Replaced by CIG50221.TO. In 2018 the June transaction was delayed to July, so July 2018 is overstated.
PM.N Philip Morris $149.92 $149.25 ($0.67) (0.4%)
T.TO Telus $12.74 $13.68 $0.94 7.4%
TD.TO Toronto Dominion Bank $67.00 $74.00 $7.00 10.4%
VAB.TO Vanguard Canadian Aggregate Bond Index $58.90 $55.17 ($3.73) (6.3%)
VCN.TO Vanguard FTSE Canadian All Cap Index $156.84 $165.46 $8.62 5.5%
VNQ.N Vanguard MSCI REIT ETF $271.26 $271.26 100.0% Previous year was in June
VOO.N Vanguard 500 Index Fund $30.32 $36.35 $6.03 19.9%
VRE.TO Vanguard MSCI REIT $32.08 $45.59 $13.51 42.1%
VXC.TO Vanguard FTSE Global All Cap Excluding US $292.17 $263.54 ($28.63) (9.8%)
WEQ.TO WesternOne $2.00 $2.00 100.0%
XBB.TO iShares DEX Universe Bond Fund $3.29 $3.33 $0.04 1.2%
TOTAL $1,030.75 $1,283.87 $253.12 24.6%

The 24.6% YoY increase should be taken with a pound–not a grain!!–of salt. As mentioned last month, there was no VNQ.TO payment as expected in June due to timing, and it came in July, so for comparisons $271.26 should be backed out. Also, NCE721.TO was replaced with CIG50221.TO in 2018, however even taking that into account, in 2018 NCE721.TO made double what CIG50221.TO did — the reason for this was timing as well. In 2018, NCE721.TO paid nothing in June but made two payments in July, so for a fair comparison $37.87 should be backed out from 2018’s July numbers.

With that in mind, the real July 2018 comparable income should be $993.05, and the 2019 comparable income should be $1012.61, resulting in only a 2.0% YoY increase. But, trailing twelve month (TTM) income for July 2019 is over $9,600 ,and for July 2018 is over $8,600, so by that measure we are up by 12.4%! Looking at the TTM is an important factor since it smooths out much of the timing issues, demonstrated above.

Onwards and upwards!


Passive Income Update for June 2019

I’ve been pretty lax in updating the blog recently, mainly due to family and work commitments.. But being a dividend focused blog, what better way to re-boot posting with a mid-year update? I will endeavour to start updating my passive income on a monthly basis. That said, June was “okay”.

Ticker Previous Year Return Current Year Return Variance Variance % Comments
BAM.N $92.44 $98.00 $5.56 6.0%
BBU.N $0.74 $0.73 $0.00 (0.6%) FX Impact
CAE.TO $4.49 $5.06 $0.57 12.7%
CBO.TO $8.20 $0.00 ($8.20) (100.0%) Sold
CIG50221.TO $39.84 $39.84 100.0%
DII-B.TO $20.61 $0.00 ($20.61) (100.0%) Timing; will be in July results
ENB.TO $4.52 $0.00 ($4.52) (100.0%) Timing; will be in July results
EPHE.N $8.78 $16.91 $8.13 92.6%
FTS.TO $9.86 $10.86 $1.00 10.1%
HLF.TO $103.97 $52.50 ($51.47) (49.5%) Dividend cut
HYG.N $11.53 $11.58 $0.05 0.4%
INTC.N $20.61 $22.49 $1.88 9.1%
MCD.N $26.68 $31.10 $4.42 16.6%
MFC.TO $3.37 $4.00 $0.63 18.7%
MGA.N $42.77 $48.48 $5.71 13.3%
R.N $13.70 $14.27 $0.56 4.1%
SLF.TO $65.35 $126.49 $61.14 93.6%
VAB.TO $65.26 $61.08 ($4.18) (6.4%) Reduced bond returns
VNQ.N $243.51 $0.00 ($243.51) (100.0%) Timing; will be in July results
VRE.TO $30.75 $45.59 $14.84 48.3%
XBB.TO $3.33 $3.33 $0.00 0.0%
XIC.TO $59.10 $64.80 $5.70 9.6%
XTC.TO $25.50 $36.00 $10.50 41.2%
TOTAL $865.08 $693.12 ($171.96) (19.9%)

Year over year, passive income was down $171.96, or 20%. The bulk of this was due to VNQ paying their dividend in July this year, whereas in 2018 it was paid in June. If we add in the dividend which was paid in July ($205.47) we actually made more year over year ($33.51, or up by 4%).

The other big blow was HLF, which cut its dividend in half earlier this year. HLF represented a large part of my income portfolio; in 2018 at this time it provided $100 in passive income, which has been literally cut in half this year.

In any case, trailing twelve month passive income is in excess of $9,000 whereas last year at this time it was $8,100, so year over year on a twelve month basis we are up more than 11%! I call that a win.

Onwards and upwards!


Portfolio Updates – March 2019

  • Major rebound since the last quarter
  • Overall, now exceeding the benchmark again
  • Passive income still doing well

Monthly Performance Summary

Like many investors in the market, there was a major correction following the dismal performance of Q4 in 2018. Overall the general trend has bee upwards, as illustrated in the monthly performance graph below: every single portfolio posted positive gains, even the margin portfolio which typically has negative gains due to the GE options.

This is a great story to tell as it reinforces the notion that when the waters get choppy, one must stick to their principles and ride out the storm. Also, it puts timelines into perspective: if I panicked—and did not remember that I have a very long (10+ year) time horizon, I may have pulled out of the market in December when everything was dropping and missed out on some great gains. It is also nice to see that, except for March, I beat my own benchmarks in January and February; in March we technically “did” beat at an 1.8% return vs the benchmark 1.7%.

From a trailing twelve-month perspective, things are looking positive as well. The total fund line (solid black) is now trending above the benchmark line (dotted black). The biggest TTM performer is the Certificated portfolio, but I attribute that to the large bump in November 2018 which is bringing up the TTM overall for that one portfolio; from the December 2018 update:

The portfolio that lead the way in Q4 was the Certificated Portfolio, and the huge spike in November can be attributed to Emera which gained 10% in November – and since that holding is the largest in the Certificated portfolio—at 24%—that 10% increase pulled the rest of the portfolio up with it. Another big winner was CAE which jumped quite nicely, spiking from a 12% gain in October to a 31% gain in November. Even after the December crash, the certificated portfolio managed to break even, with only a $1.00 variance between Q3 and Q4. Regrettably, the Certificated portfolio only accounts for 3% of the total fund, so even with its stellar performance it wasn’t enough to pull the rest of the holdings up.

 

Passive Income

Income continues to be strong quarter over quarter. As expected, there was a “loss” in January when measured against the benchmark, but this is nothing new: since the benchmark is composed of ETFs which typically pay quarterly, there are large payouts only four times a year. This compares to my actual portfolio which is made up of various quarterly and monthly dividend payers, which are staggered throughout the year yielding a smoother distribution of income.

The better view is the TTM which smooths out the bumpiness of the benchmark income:

Sadly, the overall trend has been flat/decreasing. This warrants some additional investigation—which I hope to get to in the following weeks—as I have made little change to the composition of the portfolio. However, there are a handful of ETFs which are not necessarily always non-decreasing (i.e. flat or increasing), which may be dragging the TTM numbers down. That said, overall, we are still beating the benchmark which is the ultimate goal.

A new graph I am viewing is the overall distribution of passive income between taxable, tax deferred, and tax-free accounts:

The green bar (green is good!) is passive income which will never be taxed, and it is that bar that I wish to grow over time. The trend has been increasing, and soon I hope to have 20% (if not 25%) of total passive income be tax free within the next 12 months.

Allocation

Sadly, due to competing priorities, I have been unable to invest much new cash into any of the portfolios, so the asset mix is at the whim of the wider markets. Real estate and fixed income are still lagging considerably, and I expect to see that trend maintain itself for at least another 12 months until I can infuse a large amount of capital back into the fund.

Closing Remarks

Overall the quarter did well, simply by staying invested and not worrying about the hem and haw of the wider markets (e.g. forum commentary!). That said, I do expect a drop in passive income in the coming months as I had to liquidate some of the portfolio to pay off 2018 income taxes.

Onwards and upwards!

 


Portfolio Updates – December 2018

Highlights

  • Q4 crushed my portfolio, with a 7.6% loss, even though over $5,000 in cash was added
  • Due to the huge drop in market values, my allocations are closer to target than earlier in the year
  • Passive income up 21.8% year over year

It’s periods like this that I am happy I am a “buy it and forget it” type of investor. Long gone are the days where I would monitor my portfolio constantly and start freaking out about drops in the market; if I was still in that mindset I probably would have started selling pretty early in December 2018.

Monthly Performance Summary

The last quarter of 2018 was brutal for the portfolio. Overall, I completely missed benchmark targets: where the benchmark was down 4.0% for December, the portfolio was down 6.1%, which is roughly 50% worse than the benchmark. Even looking at the quarter as a whole, the fund was down 7.6% vs the benchmark 6.4% — not quite as bad as December, but no matter which way you cut it the fund was down.

The portfolio that lead the way in Q4 was the Certificated Portfolio, and the huge spike in November can be attributed to Emera which gained 10% in November – and since that holding is the largest in the Certificated portfolio—at 24%—that 10% increase pulled the rest of the portfolio up with it. Another big winner was CAE which jumped quite nicely, spiking from a 12% gain in October to a 31% gain in November. Even after the December crash, the certificated portfolio managed to break even, with only a $1.00 variance between Q3 and Q4. Regrettably, the Certificated portfolio only accounts for 3% of the total fund, so even with its stellar performance it wasn’t enough to pull the rest of the holdings up.

No, the biggest drag on returns was the RRSP portfolio, which lost 8.6% over the quarter. This was followed by the LIRA which lost 6.8%, and right behind that was the TFSA which lost 6.7%. What’s interesting is that the LIRA portfolio tracks the benchmark (a variant of the Couch Potato portfolio), and the benchmark was only down 6.4% in the quarter – I attribute the variance there (6.8% vs 6.4%) due to rounding, and being constrained to purchasing whole shares, not fractional. The “rounding friction” leaves money on the table since the LIRA cannot stay 100% invested at all times (e.g. if I receive $35 in dividends but the stock is re-invested at $30, I am leaving $5 on the table, uninvested).

In my June 2018 update I mentioned that GE was a drag on the portfolio as well. Not surprisingly, GE was a large drag in October 2018, losing a little over 70% of its value in that timeframe, but for the other two months of the quarter it was flat.

The above graph illustrates the month over month declines when measured against the trailing twelve-month metric. Even more disconcerting is that over the course of Q4 I invested an additional $5,000 in the fund. So even with an absolute increase of $5,000, the fund still lost 7.6% over the quarter, but I still plan on staying the course, the reason for that being passive income.

For the half year update, I spoke of Aecon being one of the key drags on the portfolio. As I had hoped, when speculators jumped off of the merger wagon the price rebounded nicely in the latter half of 2018.

(Source: bigcharts)

Passive Income

So, the total fund lost a lot in the last quarter, in fact it lost 7.6% — even though I added money. However, as this is a dividend focused fund, a paper loss does not mean much to me when measured against realized gains.

So, even though on a total returns perspective the we did 50% worse than the benchmark (a loss of 7.6% vs a loss of 6.4%), as you can see from the above graph, actual income was much greater than the benchmark. Even though it looks like the benchmark did better in October (which it did, by about $600), in December the fund outperformed the benchmark by over $800. All in all, for Q4 the fund brought in $2,400 vs the benchmark $1,800. And the picture is even better when we revisit the trailing twelve months:

Total income for 2018 is north of $9,200, compared to the benchmark which was a little over $7,500. On a year over year basis, passive income also increased by more than 21% over the same time in 2017. Also, from my 2018 Goals List (link), my goal was to increase passive income by 5%, or to over $8,100 per year. I have more than exceeded that goal, which is a win! I’ll re-iterate what I said in July:

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.

Allocation

The other saving grace is that, because equities did so poorly in Q4, the overall allocation to equities dropped, increasing the exposure to fixed income and real estate.

I did not publish an update for Q3, but even compared to Q2 he balance is better: Equity exposure dropped from over 70% to a little over 60%, and fixed income and real estate increased as well. The $5,000 of additional funding I spoke of earlier primarily went to VRE.TO to increase my real estate exposure, and the plan is working.

However, I am still a far cry from my target allocations. 2019 will be focused on pouring more money into real estate ETFs to force that component of the portfolio up. With concerns over interest rates, etc., in Canada, I actually expect real estate prices to drop, which means I may be able to pick up real estate ETFs on the cheap over the next twelve months.

Closing Remarks

I’ve been very lazy the past 6-9 months, with work and fatherhood taking the majority of my time. That laziness somewhat worked in my favour as I was pretty oblivious to the drop in my portfolio until I sat down to crunch the year-end numbers; I simply wasn’t paying attention to the financial news. Since my focus has been on increasing real estate exposure, any free cash flow I had went straight into VRE.TO.

My concerns about a drop in the passive income from paying off my car did not really materialize. I was worried about the loss of $250 in passive income, but due to my aggressive investing in VRE.TO I made up the difference on the other $5,000+ I had invested.

The bigger question is what I will do this year. For now, I am cleaning things up and looking for gaps in the portfolio, including re-initiating coverage on companies I used to research before; at the very least, to ensure that they are still good investments. A challenge with being a passive “buy it and forget it” investor is sometimes you get antsy when you are not doing anything. Next steps will be to revisit my 2018 goals, plan 2019 goals, and see where that takes me.

Onwards and upwards!


Portfolio Updates – June 2018

Highlights

  • 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.

Allocation

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!

 


2017 Investment Performance Review

In my last post I spoke about re-focusing on blog updates, and that includes periodic reviews of portfolio performance. Because I’ve been behind in blog updates in general, it took me a while to key in the last four months of returns to see where we sat at year-end. But, the numbers are in!

Highlights:

  • Total returns for the year 10.98% vs. benchmark of 10.70%
  • Passive income for the year in excess of $7,700, beating last years total by 11.51%
  • Assets under management growth of 26%

Monthly and Annual Performance

Monthly Performance as of December 31, 2017

The biggest drag on monthly performance for the past quarter was the purchase of some GE options following GE’s announcement to re-org.  From a long-term perspective I believe GE will pull through and ultimately increase share price.  Based on that, I’ve purchased some call options which expire in January 2020.  However, since that purchase GE has plunged even deeper: when I purchased the call options the market price was ~U$20, and it is now hovering at the U$15 mark, a 25% drop.  The options have dropped in a similar fashion.  However, I am not overly concerned.  That particular position accounts for only 0.14% of the overall portfolio, so even a material loss of 25% amounts to an insignificant drop in the overall scheme of things.

My employer has also been doing relatively well lately, so my EPSP and DC pension plan with the company have been performing well.  My DC is actually a model of the couch potato portfolio–similar to the LIRA–so for the most part it moves in lockstep with the benchmark.

Trailing Twelve Month Performance as of December 31, 2017

Trailing Twelve Month Performance as of December 31, 2017

On a year over year basis, we came in at 10.98% for the year vs. the benchmark return of 10.69%, so we just barely beat the benchmark.  At the end of 2016 we had come in at 10.63% vs. a benchmark return of 7.27%.  So we did not beat the benchmark as much as we did last year, but we still beat it.  To me, that is a win.

Passive Income

Passive income for the year came in at $7,700, which beat my goal of increasing by 5%.

2014 $4,400 n/a
2015 $7,000 58.7%
2016 $6,900 (2.3%)
2017 $7,700 11.5%

Reviewing the historical data, things are shaping up like I thought they would.  The large drop in 2016 was mainly due to liquidating a large chunk of the portfolio to purchase a house.  Since then, I have been aggressively working to increase overall income.  To date, the work seems to be paying off (no pun intended).

Asset Allocation

My asset allocation did not improve much year over year.  In fact, it got worse.

Asset Allocation as of December 2017

Asset Allocation as of December 2017

Total allocation to equity went form 73.15% in 2016 to 76.37% in 2017.  I’ve invested the majority of new capital into REIT ETFs, primarily Vanguard’s VRE, to increase my real estate exposure.  However, even with that, my real estate  exposure decreased from 11.35% to 10.94% year over year.  The primary driver for this was the overall increase in the value of my holdings: put simply, my stocks appreciated more than my real estate holdings.  Taking the long view this is not a bad thing, however I still have some work cut out for me to rebalance this year.

Total Returns Since Inception

All in all, the total fund came in at 10.98% for 2017, which has pulled the nine-year compounded return down from 12.35% in 2016 to 12.20%:

Year Return Since Inceptoin
2009 23.59% 23.59%
2010 14.69% 19.06%
2011 (1.60%) 11.73%
2012 13.51% 12.17%
2013 21.59% 14.00%
2014 15.41% 14.23%
2015 3.27% 12.60%
2016 10.63% 12.35%
2017 10.98% 12.20%

A 12.20% per year return is nothing to scoff at, so I am generally happy with the way that things have been going.

In terms of pure assets under management, total assets under management have gone up by 26% year over year.  Of the growth, 37% was organic (i.e. growth in holdings, dividends, favourable exchange rates), and the remaining 63% was accretive (i.e. new invested capital).  I’m happy to say that I have finally broken the quarter-million mark in AUM, since the portfolio now holds north of $310M.

Closing Remarks

My plan this year, other than the goals mentioned in my last post, is to stay the course.  Except for the gamble on GE I took, as a whole the portfolio has grown considerably.  Here’s hoping for another good year.

Onwards and upwards!

 

Save


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!