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Pape’s mutual fund portfolios: risk pays off
6/23/2018 11:38:51 PM
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Wealth Builder
Gordon Pape writes on common-sense wealth-building strategies.

By Gordon Pape  | Monday, June 05, 2017



It’s been a good period to own stocks. Bonds, not so much. That’s the obvious conclusion after reviewing the five mutual fund portfolios I created eight years ago for my Mutual Funds Update newsletter. The more risk you took on, the better you did. Here is the latest update. Performance results are as of Dec. 31, 2016.

The Ultra-Safe Portfolio

This portfolio is designed for investors who want higher returns than they can get from a GIC or money market fund, without taking on a lot of risk. The main focus is on bonds.

Performance to date

Initial value (Jan. 1/09) = $25,000
Value at last review (June 30/16) = $32,912.40
Current value = $32,900.09
Change since last review = -$12.31
Return since last review = -0.004%
Change since inception (8 years) = 31.6%
Annualized compound rate of return = 3.49%

Comments: The last six months of 2016 were not good for bonds. Prices dropped as yields rose in response to an increase in interest rates in the U.S. and new expectations of inflation under the Trump administration. Two of the bond holdings in this portfolio are in defensive short-term funds, but even they recorded modest losses during the period. The best performance was turned in by the Fidelity Monthly Income Fund, which was up 1.79%.

Changes: We never like to see a fund lose ground, even if the amount is small. This is a classic low-risk/low-return portfolio but, as we saw in the latest six months, it’s not immune to small losses. The main objective is to avoid any large ones. Despite the setback, I see no reason to change the composition of the portfolio at this time. Let’s see what the next six months brings.

Defensive Portfolio

This portfolio aims for a higher rate of return than the Ultra-Safe Portfolio, with correspondingly higher risk. It is best suited to non-registered accounts where safety and income are the top priorities. The fund targets an average annual compound rate of return between 4% and 6%.

Performance to date

Initial value (Jan. 1/09) = $25,000
Value at last review (June 30/16) = $37,893.82
Current value = $38,232.18
Change since last review = $338.36
Return since last review = 0.09%
Change since inception (8 years) = 52.93%
Annualized compound rate of return = 5.45%

Comments: Here again, the bond funds recorded small losses, holding down our overall return. However, the bond weighting here is less than in the Ultra-Safe Portfolio, so the impact was reduced. Our balanced funds ended on the plus side, with a good performance from the recently added TD Diversified Monthly Income Fund. Our annualized return is well within the target we set for this portfolio.

Changes: This portfolio is functioning about as expected so we will not make any changes at this time.

RRSP Portfolio

As the name implies, this portfolio is designed for RRSP accounts. Risk is kept to a reasonable level (we aim for a 60-40 equity/bond split) and the annual target rate of return is in the 6% to 7% range.

Performance to date

Initial value (Jan. 1/09) = $25,000
Value at last review (June 30/16) = $42,527.72
Current value = $43,718.30
Change since last review = $1,190.58
Return since last review = 2.80%
Change since inception (8 years) = 74.87%
Annualized compound rate of return = 7.24%

Comments: We’re seeing the same pattern here as with the other portfolios: bond funds are down, equity funds are up. In this case, the gain since the last review was fuelled largely by one fund. The Beutel Goodman American Equity Fund gained more than 13% over the six months to Dec. 31, 2016. We also had a decent return from the Fidelity Canadian Large Cap Fund, which added more than 5%.

Changes: Our overall bond weighting is a little on the low side at 37.6%. At the same time, our foreign equity weighting is somewhat on the high side for this environment. Accordingly, we sold $1,500 worth of Mackenzie Ivy Foreign Equity Fund and reinvested the money in the TD High Yield Bond Fund (I units). This is a no load fund.

This accomplished two things: It lifted our bond weighting back to a more appropriate level and it gave us exposure to a segment of the bond market (high yield) we didn’t have in the portfolio. The TD fund has an excellent performance record with a gain of 19.3% in 2016. However, it is riskier than the other bond funds we own, so we will minimize our exposure.

Here is the revised portfolio.

RRIF Portfolio

Safety and cash flow are the twin goals of this portfolio. The objective is to provide enough income to enable investors to avoid dipping into capital for as long as possible. The target return is 6% per year.

Performance to date

Initial value (Jan. 1/09) = $25,000
Value at last review (June 30/16) = $38,486.50
Current value = $38,711.45
Change since last review = $224.95
Return since last review = 0.06%
Change since inception (8 years) = 54.85%
Annualized compound rate of return = 5.62%

Comments: This portfolio more or less broke even over the latest period ending Dec. 31, 2016. The losses on the bond side were about equally offset by balanced and equity fund gains. I’d like to see a better result, but this result is about what we should expect in a portfolio that is heavily weighted to fixed income securities.

Changes: We can reduce the risk on the bond side by moving some assets out of the PHN Total Return Bond Fund and into a money market fund. Accordingly, we’ll transfer $3,000 from that fund into the PHN Money Market Fund. Here is the revised portfolio.

Growth Portfolio

The portfolio is designed for investors seeking long-term growth and who are willing to accept a greater level of risk to achieve that goal. As you might expect, the portfolio is heavily weighted to stocks; however, we avoid high-risk funds. The target rate of return is 8%+.

Performance to date

Initial value (Jan. 1/09) = $25,000
Value at last review (June 30/16) = $54,902.51
Current value = $58,928.39
Change since last review = $4,025.88
Return since last review = 7.33%
Change since inception (8 years) = 135.71%
Annualized compound rate of return = 11.31%

Comments: Our bond funds tanked, but our stock funds did very well over the six months ending Dec. 31, 2106, leading us to a return of 7.33% for the period. Over eight years, this portfolio has generated an average annual compound rate of return of 11.31%, well in excess of our target.

Changes: None. The bond weighting is on the light side compared with our target of 10%, but given the aggressive nature of this portfolio, that is not a concern. The equity funds are well balanced between domestic and international and are performing well.

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. This column originally appeared in The Toronto Star.

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

Follow Gordon Pape on Twitter at and on Facebook at

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.


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