The initial valuation was $25,027.75, and the target was to achieve a
return that at least matched the best available five-year GIC rate plus two
percentage points. That means the target has varied over time with the rise
and fall of interest rates. Right now, the best five-year rate I can find
is around 3.5%, so we are currently looking for an annual return on this
portfolio in excess of 5.5%. When I updated the portfolio back at the end
of March, the best five-year GIC rate was about 3.25%, making our target
return back then 5.25%.
Here’s a summary of how the securities in the portfolio performed over the
six months ending March 29 since I last reviewed it in September 2017.
Prices are as of the close of trading on March 29.
iShares Canadian Short Term Bond Index ETF (TSX: XSB).
This is a defensive ETF, investing in short-term bonds with maturities of
five years or less. Its purpose is to add stability and modest cash flow to
the portfolio. The price was down $0.18 per unit over the six-month
reporting period, but we received distributions of $0.3824 per unit, so we
ended up with a small net gain for the period.
iShares Canadian Universe Bond ETF (TSX: XBB). Surprise! Even with the general rise in interest rates, this bond ETF,
which covers the entire Canadian fixed-income sector, managed a small gain
in the latest six months. It was only $0.10 per unit, but in a period of
weak bond prices we will take it. We also received monthly distributions of
$0.522 per unit as a bonus.
iShares International Treasury Bond ETF (NASDAQ:
IGOV). This ETF invests in government bonds from around the world, except the U.S.
More than 75% of the holdings are rated A or higher, so the credit quality
is very good. We added this fund last September to diversify our bond
holdings and to try to boost returns. It has done well for us so far,
gaining $1.87 in the latest review period. The distributions are minimal,
however, with only US$0.021 paid out in December.
Cineplex Inc. (TSX: CGX). Cineplex shares continue to struggle, losing $8.20 in the most recent
period. The dividends are good, with monthly payments of $0.14 a share, but
the company itself is clearly having problems.
Inter Pipeline (TSX: IPL). Interest-sensitive stocks have been under pressure in recent months, and
this company falls into that category. The shares are off $1.88 since the
last review. One piece of good news: The monthly distribution was increased
by half a cent in November, to $0.14 per unit ($1.68 per year). The shares
yield 7.5% at the current price.
Brookfield Renewable Energy Limited Partnership (TSX: BEP.UN). This renewable energy limited partnership has traded in a narrow range in
the past 18 months. In the latest period, the shares were down $0.98, but
we received two distributions, totalling US$0.9575 per unit. The
distribution was increased by 4.8%, to US$0.49 per quarter, effective in
Brookfield Infrastructure Limited Partnership (TSX: BIP.UN). his is another Brookfield partnership, but in this case the assets are
infrastructure – everything from coal terminals and railways to power
transmission lines. The price is up almost $1 since September, and we
received an 8% distribution increase, to US$0.47 per quarter.
BCE Inc. (TSX: BCE). BCE shares were down $2.23 in the latest six months. However, we recovered
$143 of that in dividends, so the overall loss was small.
Cash. We invested $2,025.19 in a high interest savings account with EQ Bank
that paid 2.3%. We earned interest of $23.29 for the period.
The following table shows how the portfolio stands now. Commissions have
not been factored in. For simplicity, Canadian and U.S. dollars are treated
as being at par for purposes of the calculations, although obviously, the
dividends received from the two Brookfield partnerships are worth more in
Canadian dollar terms.
Comments: This was not a good six months for this portfolio. The bond section held
up quite well, but we were hurt by the heavy loss in Cineplex and smaller
declines in Inter Pipeline and BCE. The end result was a 1.36% setback for
That reduces the cumulative gain to date to 56.9%, which works out to an
annual compound growth rate of 7.18%. That’s better than our target, but I
am not happy with the recent results, so we are going to make some changes.
Changes to the Balanced Portfolio
We will sell our position in Cineplex. It offers a nice yield, but it has
fallen out of favour with investors and recorded significant losses in the
past year that have hurt our overall performance. Based on the current
market value and retained earnings, we will realize a total of $3,737.25.
We will use the money to buy 270 units of
Dream Global REIT (TSX: DRG.UN), which closed on March 29 at $13.75. The cost will be $3,712.50. The
remaining $24.75 will go to our cash account.
This real estate investment trusts invests exclusively in commercial real
estate properties located outside of Canada. To date, the focus has been
entirely on Europe where the REIT owns approximately 20 million square feet
of gross leasable area of office, industrial, and mixed-use properties
across Germany, the Netherlands, Austria, and Belgium. The trust pays a
monthly distribution of $0.0666 ($0.7992 per year), which works out to a
yield of 5.8% at the current price. Unit price has shown a strong upward
movement over the past years with the units trading at well above their 50-
and 200-day moving averages.
As well, we will use some of our cash to add to existing positions as
– We will buy 10 units at a cost of $306.90. This will bring our position
to 150 units. We will use all the retained earnings and take $0.90 from
cash to cover the difference.
– We have not lost faith in this pipeline company. We will buy 10 more
shares for a cost of $223.60 in the hope of a turnaround in the price. That
brings our total to 140 shares and reduces retained earnings to $78.45.
– We will add 10 units for a cost of $400.60, bringing our total to 130. We
will have cash remaining of $68.11.
The total cash balance of $1,582.65 will be left on deposit with EQ Bank at
The following table shows the revised portfolio as of March 29. I will
review it again in my Income Investor newsletter in September.
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 Investor newsletters, 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
Notes and Disclaimer
© 2018 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