Pape’s RRSP Portfolio holds steady

09-19-2022
Pape’s RRSP Portfolio holds steady

Portfolio mandate helps preserve capital during downturn

 

I have always advised reviewing your RRSP portfolio at least twice a year and preferably quarterly. Sometimes it can be discouraging, like right now when almost everything is down. But it’s important to stay on top of how well your plan is performing and to make changes if needed.

I launched the RRSP Portfolio in February 2012 in my Internet Wealth Builder newsletter. It has two main objectives: to preserve capital and to earn a higher rate of return than you could get from a GIC. The original value was $25,031.92.

About 27% of the portfolio is in bonds, preferred shares, and cash. The balance is in growth-oriented assets that offer exposure to the Canadian, US, and international equity markets. The portfolio contains a mix of ETFs, stocks, 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 comments on how they have performed since the last review in February. Results are as of the afternoon of Aug. 10.

iShares 0-5 Years TIPS Bond Index ETF (TSX: XSTP). This is a new ETF that invests in short-term U.S. Government inflation protected notes. They pay a low rate of return, but both the face value and the interest increase as inflation rises. This provides downside portfolio protection. The units are down $0.60 since we added this ETF in February but that was more than offset by monthly distributions that totaled $1.21 per unit.

iShares Canadian Universe Bond Index ETF (TSX: XBB). This ETF tracks the performance of the total Canadian bond universe including government and corporate issues. Bonds continue to struggle as central banks aggressively raise interest rates in an effort to quash inflation. The units declined $1.84 since the last review. We received distributions of $0.397 per unit.

iShares Convertible Bond Index ETF (TSX: CVD). This fund invests in bonds that can be converted into common stocks under certain conditions. It offers a play on the stock market while providing cash flow. The units lost $0.57 in the latest period. We received distributions of $0.417 per unit.

iShares S&P/TSX Canadian Preferred Share Index ETF (TSX: CPD). This ETF invests in a portfolio of preferred shares, mostly rate reset issues. These should tend to rise as interest rates move higher, but we aren’t seeing that yet. The units are down $1.52 since we purchased them in February. Distributions totaled $0.292 per unit.

BMO S&P/TSX Banks Equal Weight Index ETF (TSX: ZEB). This ETF invests in shares of the Big Six Canadian banks. Banking stocks normally fare well in a rising interest rate environment, but recession fears have weighed heavily on prices this year. The units are down $6.75 since we bought them in February. Monthly distributions that totaled $0.72 didn’t come close to offsetting that. However, I firmly believe we’ll see a recovery here (in fact, it may have already started).

iShares Edge MSCI Minimum Volatility USA Index ETF (CAD-Hedged) (TSX: XMS). XMS invests in low-beta U.S. stocks, such as T-Mobile, Cisco Systems, Johnson & Johnson, and PepsiCo. “Low-beta” means they are less sensitive to broad market movements and, in theory, less risky. The fund posted a small loss of $0.77 in the latest six months. Quarterly distributions totaled $0.179 per unit.

BMO Low Volatility Canadian Equity ETF (TSX: ZLB). This ETF invests in a portfolio of large-cap Canadian stocks that have a low beta history. It’s down $0.64 since the last review, but well ahead since it was added to the portfolio. We received two quarterly distributions for a total of $0.52.

BMO Low Volatility International Equity Hedged to Canadian Dollar ETF (TSX: ZLD). This ETF focuses on international stocks and is hedged to Canadian dollars, so the currency risk is removed. It lost a modest $0.04 in the latest period. Distributions totaled $0.30 per unit.

Brookfield Renewable Partners LP (TSX: BEP.UN). This Bermuda-based limited partnership owns a range of renewable power installations (mainly hydroelectric but also some wind and solar). Green energy stocks have started to recover after going through a prolonged slump, and these units gained $8.10 in the latest period. We received two distributions for a total of US$0.64.

Brookfield Infrastructure Partners LP (TSX: BIP.UN). This limited partnership invests in infrastructure projects around the world. The units split 3 for 2 in June so we now own 180. We received two distributions totaling US$0.72.

Fortis Inc. (TSX, NYSE: FTS). We added this utility stock to the portfolio a year ago and it is performing as expected. The shares are up $1.07 since the last review, and we received two dividends of $0.535 each.

BCE Inc. (TSX, NYSE: BCE). BCE shares wavered a little as the stock lost $2.05 in the latest period. We received two quarterly dividends of $0.92 each.

Interest. We invested $2,744.33 in the EQ Bank Retirement Savings Plan, paying 1.25%. We received $17.15 in interest.

The following table shows how the RRSP Portfolio stood as of Aug. 10. Commissions have not been factored in and Canadian and U.S. currencies are treated at par for ease of tracking.

Comments

Everything is down this year – stocks, bonds, preferred shares, you name it. But our RRSP Portfolio managed to hold its ground over the latest six months, posting a fractional gain of 0.2%. Given the state of the markets, I think most people would accept that.

The biggest loser was the recently added BMO S&P/TSX Banks Equal Weight Index ETF, but I expect it to bounce back and provide good returns over time. The best performance was turned in by Brookfield Renewable Partners, which was up more than $8 as green energy stocks recovered.

Over the ten and a half years since the portfolio was launched, we have a total return of 159.9%. That’s an average annual growth rate of 9.52%, well above target.

Changes

We performed a major overhaul of the portfolio last February. A breakeven in a down market is a decent result so we will stick with the current securities for at least another six months and see how they fare.

We will use retained earnings to add to these positions:

XBB – We will purchase another 10 units for a cost of $284. That will give us 210 units and reduce the cash balance to $204.58. Why are we adding more bonds, you may ask? Because they are cheap, and the market will eventually turn. When it does, XBB will profit.

ZLB – We’ll buy another 10 units for $400.30. We now have 160 units with retained earnings of $93.20.

BIP.UN – We’ll add 10 units at a cost of $523.80. That brings our total to 190 units, with retained earnings of $54.59.

The new cash balance (including retained income) is $2,606.77. We will move it over to Duca Credit Union which is offering a special promotion rate of 3.25%.

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

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. To take advantage of a 50% saving on a trial subscription and receive the special report “The Tumultuous Twenties,” go to https://bit.ly/bwGP20s.

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Notes and Disclaimer

Content © 2022 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. 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.