Pape’s RRSP Portfolio review and update

Pape’s RRSP Portfolio review and update

Energy, bonds weigh on performance


I know, it’s a long way from RRSP season. But your retirement plan shouldn’t be ignored once you’ve made your annual contribution. It should be reviewed at least every six months (quarterly is even better) to ensure it’s performing to the standards you set and whether any changes are needed.

That’s why we’re reviewing our model RRSP portfolio in August.

This portfolio was launched in my Internet Wealth Builder newsletter nine and a half years ago, in February 2012. 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.

Almost 30% of the portfolio is in bonds and cash. The balance is in growth-oriented assets that offer exposure to the Canadian, U.S., 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. Results are as of the close on Aug. 12.

PIMCO Monthly Income ETF (TSX: PMIF). This global bond fund lost a little ground in the latest period, slipping $0.21 a unit. But we received distributions of just under $0.20 per unit, so the setback wasn’t significant.

iShares Canadian Universe Bond Index ETF (TSX: XBB). This ETF tracks the performance of the total Canadian bond universe including government and corporate issues. This is a bad period for bonds and the units declined $0.92. That was only partially offset by distributions of $0.41 per unit.

iShares Canadian Corporate Bond Index ETF (TSX: XCB). This fund invests exclusively in corporate issues. It was added to the portfolio in February 2019. In the latest period, it lost $0.19 per unit, but that was more than offset by monthly distributions totaling $0.313.

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 gained $0.39 in the latest period, and we received distributions of just under $0.43 per unit.

iShares Core U.S. Aggregate Bond ETF (NYSE: AGG). This ETF aims to replicate the returns of the total U.S. bond market. It was added in 2019 to give us more exposure to American bonds. The units are down $1.43 since the last review, but we received distributions of $1.023.

Harvest Tech Achievers Growth and Income ETF (TSX: HTA). This portfolio had no technology exposure, so we added this ETF a year ago at a price of $12.40. The fund invests in an equally weighted portfolio of 20 large cap tech companies such as Apple, Cisco, Facebook, and Adobe. The managers write covered call options to generate income. The units gained $2.30 over the latest six months, and we received $0.396 per unit in distributions. Total return during the period was over 18%.

iShares Edge MSCI Minimum Volatility USA Index ETF (CAD-Hedged) (TSX: XMS). XMS invests in low-beta US stocks such as Coca-Cola, Visa, McDonalds, and Verizon. Low beta means they are less sensitive to broad market movements and, in theory, less risky. The fund posted a gain of $3.71 in the last six months and delivered quarterly distributions totaling $0.186 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 up $5.92 since the last review, and we received two quarterly distributions for a total of $0.48.

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 gained $2.69 in the latest period, and distributions totaled $0.30 per unit.

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 and solar). It has been one of the driving forces of this portfolio, but the units got ahead of themselves as money poured into green energy stocks last year. We paid the price for that in the latest period, with the units dropping $10.77.

Brookfield Renewable Corporation (TSX: BEPC). This is the spinoff corporation from Brookfield Renewable Partners. Like its limited partnership twin, it also took a beating in the latest period, losing $11.66 per share.

Brookfield Infrastructure Partners LP (TSX: BIP.UN). This limited partnership invests in infrastructure projects around the world. As with BEP, it has also spun off a Canadian-based corporation, known as Brookfield Infrastructure Corporation (TSX: BIPC). The units have fared much better than BEP.UN, gaining $4.32 in the latest six months. We received two distributions of US$0.51 each.

Brookfield Infrastructure Corporation (TSX: BIPC). This is the corporate spinoff from BIP.UN. The share price is up $3.16 in the latest period. Dividends are the same as with its limited partnership twin.

BCE Inc. (TSX: BCE). BCE rebounded well from a bad run in 2020 and the stock gained $8.33 in the latest period. The quarterly dividend was raised to $0.875 effective with the March payment.

Interest. We invested $2,353.99 in an Alterna Bank High Interest Savings Account, paying 1.2%. We received $14.12 in interest.

Here is how the RRSP Portfolio stood as of Aug. 12. Commissions have not been factored in and Canadian and U.S. currencies are treated at par for ease of tracking.

Comments:Had it not been for the big drop in Brookfield Energy Partners, we would have experienced a strong gain during the latest period, The bond sector was pretty much flat overall while all our equity holdings except BEP.UN and BEPC gained ground. We had decent contributions from our low volatility funds, BCE, BIP, and Harvest Tech Achievers ETF.

The net result was a gain of 3.6% for the six-month period. Over the nine and a half years since the portfolio was launched, we have a total return of 157.1%. That’s an average annual growth rate of 10.45%, well above target.

Changes: The portfolio is performing well overall, but I would like to add a utility to our holdings and reduce our heavy weighting in Brookfield. Accordingly, we will sell BEPC and BIPC, for a total of $4,067.64, including retained earnings.

We’ll use the money to buy 70 shares of Fortis (TSX: FTS) at $57.67 for a total cost of $4,050.90. We’ll add the remaining $16.74 to our cash reserve.

As well, we’ll use retained earnings to add to other positions as follows:

CVD – We’ll buy 10 units for $18.65 each ($186.50 total cost). Cash remaining will be $21.37.

HTA – We will add 10 units at $17, for a cost of $170. Our retained earnings will drop to $12.56.

The new cash balance (including retained income) is $2,706.39. We will move it to the EQ Bank Retirement Savings Plan where the current rate is 1.25%.

Here is the revised portfolio. I’ll review it again in my Internet Wealth Builder newsletter in February.

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.

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Notes and Disclaimer

© 2021 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.