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This RRSP portfolio has returned an annualized 10.8%
3/23/2017 10:06:36 PM
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Wealth Builder
Gordon Pape writes on common-sense wealth-building strategies.



By Gordon Pape  | Monday, March 13, 2017


 

BUILDING WEALTH WITH GORDON PAPE
 

Wondering how to deploy cash you put in your RRSP to meet this year’s contribution deadline? In February 2012 I created my RRSP Portfolio for readers of my Internet Wealth Builder newsletter. It had an initial value of $25,031.92 and was designed with two main goals: The first is capital preservation – as with any pension plan, you don’t want to lose money; the second is to earn a higher rate of return than you could get from a GIC. So here’s a look at how it has done.

I constructed the portfolio to include bonds and defensive securities in order to reduce risk. But I also added some growth-oriented securities, including mutual funds that offer exposure to the Canadian, U.S., and international equity markets. The portfolio contains a mix of exchange-traded funds (ETFs), mutual funds, and limited partnerships, so readers who wish to replicate it must have a self-directed RRSP with a brokerage firm.

These are the securities currently in the portfolio, with some comments on how they have performed since the last review.

iShares Core Canadian Short Term Corporate + Maple Bond Index ETF (TSX: XSH). This is a short-term bond fund that invests in securities issued by Canadian companies or by foreign corporations in Canadian currency (the Maple Bonds). Short-term bond funds are essentially defensive positions, so returns are low. Over the latest six-month period, this fund lost $0.14 per unit in market value, but we received about $0.29 in distributions for a small net gain.

iShares Canadian Universe Bond Index ETF (TSX: XBB). We added this ETF to the portfolio in February 2015. It tracks the performance of the total Canadian bond universe, including government and corporate issues. Bonds have gone through a difficult period, and the market price of this ETF is down by $1.44 since our last review in August. We received distributions of about $0.43 per unit over the period, so we lost ground here.

Fidelity Canadian Large Cap Fund Series B (FID231). The net asset value (NAV) of this fund is down by $0.11 since our last review. However, we received a year-end distribution of $0.82 per unit in late December, so we have a modest overall gain for the period.

Beutel Goodman American Equity Fund Class D (BTG774). This fund rebounded strongly in the latest six months. The unit value is up by $0.97, and we received a year-end distribution of $0.421 per unit. The total return for the period was just over 10%.

Trimark International Companies Fund Series A (AIM1733). This fund was added to the portfolio last August, replacing the Black Creek International Equity Fund, which was not performing to our expectations. We lost $0.05 per unit during past six months and received no distributions. That was below average for the category, so we’ll keep an eye on this one.

Brookfield Renewable Energy Partners LP (TSX: BEP.UN). This Bermuda-based limited partnership owns a range of renewable power installations (mainly hydroelectric but also some wind) in North and South America. The price took a tumble to the $36 range in December but has since recovered to about the same level as the time of my last review. We received two distribution totalling US$0.89 per unit over the latest six months, and the board has approved a 5% increase in the payout starting in March.

Brookfield Infrastructure Partners LP (TSX: BIP.UN). This limited partnership invests in infrastructure projects around the world. The units split 3 for 2 in September, which means for every 100 units you owned previously, you now have 150. The partnership just announced an 11% increase in the quarterly distribution, to US$0.435, starting in March.

Interest. We invested $1,636.43 in an account with EQ Bank, which was paying 2.25% at the time. We received $18.41 for the period.

The following table shows how the RRSP Portfolio stood as of the afternoon of Feb. 3 (mutual fund prices are as of the close of trading on Feb. 2). Commissions have not been factored in, and Canadian and U.S. currencies are treated at par for ease of tracking.

Comments

The portfolio turned in a small gain of 2.43% in the latest six-month period, thanks to strong performances from the Beutel Goodman American Equity Fund and the Brookfield Infrastructure LP. The rest of our securities were more or less flat.

That brings the total return in the five years since this portfolio was launched to 67.2%. That’s an average annual compound rate of return of 10.83%, well in excess of our target.

Changes: The bond funds aren’t doing well at this point, so we’re going to diversify our holdings. We will sell 130 units of XSH for $2,545.40 and invest the money in the TD High Yield Bond Fund Investor Series (TDB626). As of Feb. 2, it was priced at $6.80 per unit, so we will buy 375 units. We’ll take $4.60 from cash to make up the difference.

We will buy another 20 units of Beutel Goodman American Equity Fund, to bring our total to 600. The cost is $294.80. We will use $284.57 from accumulated distributions and take the other $10.23 from cash.

We have enough retained income to buy another 10 units of Brookfield Energy Partners for $394.70. This will bring our total to 110 and reduce our retained income to $26.80.

Finally, we will buy 10 units of Brookfield Infrastructure LP for $459, leaving us with cash of $161.25.

We will reinvest our cash balance of $1,237.87 in the EQ Bank account, which now pays 2%.

The following table shows the revised portfolio. I’ll review it again in my Internet Wealth Builder newsletter in August.

Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investornewsletter, which are available through the Building Wealth website.

For more information on subscriptions to Gordon Pape’s newsletters, check the Building Wealth website.

Follow Gordon Pape on Twitter at https://twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney .

Notes and Disclaimer

© 2017 by The Fund Library. All rights reserved.

The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.

BUILDING WEALTH WITH GORDON PAPE
 

 
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