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Strong results from model portfolios
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Wealth Builder
Gordon Pape writes on common-sense wealth-building strategies.



By Gordon Pape  | Wednesday, February 09, 2011


 
WEALTH BUILDER

On Jan. 1, 2009, I created five model portfolios for readers of my Mutual Funds/ETFs Update newsletter, each with an initial value of $25,000. All mutual funds and ETFs were eligible for inclusion except those funds that are available only to “sophisticated investors” through offering memorandum.

I review and update the portfolios twice yearly, and because they have been so popular with our newsletter readers, I am sharing the latest results with Fund Library users.

This week I’ll update my two registered portfolios, one designed for RRSPs and the other for RRIFs. Here is a summary of the objectives of each portfolio.

The RRSP Portfolio. This portfolio is structured in much the same way as a conservatively managed pension plan. Risk is kept to a reasonable level consistent with a long-term annualized growth target in the 6% to 7% range.

The RRIF Portfolio. Cash flow and capital preservation are the goals. The portfolio is designed to provide enough income to avoid dipping into capital for as long as possible, while shielding investors from heavy losses in market downturns. The target return is about 6% a year, although so far we have done much better than that.

Here is how we fared in the six months to Dec. 31, 2010.
 
RRSP PORTFOLIO

Fund Name 

Weight

6-Mo. Return

Value

 PH&N Canadian Money Market

5%

+0.21%

$1,339.93

 PH&N Short Term Bond and Mortgage

15%

+1.42%

$4,068.34

 Beutel Goodman Income

15%

+2.31%

$4,104.04

 iShares DEX All Corporate Bond Index ETF

15%

+1.70%

$4,079.57

 Fidelity Canadian Disciplined Equity

15%

+22.86%

$4,928.38

 BMO Guardian Monthly Dividend Classic

15%

+8.44%

$4,349.94

 Beutel Goodman American Equity

10%

+12.31%

$3,003.45

 Mawer World Investment

10%

+20.23%

$3,215.25

Totals

100%

 

$29,088.92


PERFORMANCE TO DATE

Initial value (Jan. 1/09)

$25,000.00

Value at last review (June 30/10)

$26,742.53

Current valuation (Dec. 31/10)

$29,088.92

Change since last review

+$2,346.39

% change since last review

+8.77%

% change since inception (2 years)

+16.36%

Comments: Two of the equity funds in this portfolio gained more than 20% in the six months from July 1 to Dec. 31. Fidelity Canadian Disciplined Equity, one of our long-time favourites, added almost 23%, which was no great surprise considering the quality of the fund and the strength of the Canadian market during that period. But investors may have not expected the 20% gain produced by the Mawer World Investment, given the weakness of international funds in recent years. Some readers may also have been caught off guard by the 12% advance in the Beutel Goodman American Equity, although we have said that we expect better results from the U.S. market this year. 

Changes: We are dropping the iShares DEX All Corporate Bond Index ETF from the portfolio as we feel it will be a below-average performer this year. We’ll replace it with the BMO High Yield US Corporate Bond Hedged to CAD ETF, with a 10% weighting. We will increase the PH&N Canadian Money Market to a 10% weighting. Here is the revised portfolio. 

REVISED RRSP PORTFOLIO
 

Fund Name

Weight

 PH&N Canadian Money Market

10%

 PH&N Short Term Bond and Mortgage

15%

 Beutel Goodman Income

15%

 BMO High Yield US Corporate Bond

10%

 Fidelity Canadian Disciplined Equity

15%

 BMO Guardian Monthly Dividend Classic

15%

 Beutel Goodman American Equity

10%

 Mawer World Investment

10%

Totals

100%


Now for a fresh look at our RRIF portfolio.
 
RRIF PORTFOLIO

Fund Name 

Weight

6- Mo. Return

Value

 PH&N Canadian Money Market

5%

+0.21%

$1,459.95

 PH&N Short Term Bond and Mortgage

15%

+1.42%

$4,432.74

 Beutel Goodman Income

15%

+2.31%

$4,471.64

 iShares DEX All Corporate Bond Index ETF

15%

+1.70%

$4,444.98

 Mackenzie Sentinel Income B

15%

+6.42%

$4,651.28

 BMO Guardian Monthly Dividend Classic

10%

+8.44%

$3,159.71

 Fidelity Monthly Income

15%

+10.01%

$4,808.18

 iShares Shares S&P/TSX REIT Sector Index

10%

+14.78%

$3,344.44

Totals

100%

 

$30,772.93


PERFORMANCE TO DATE

Initial value (Jan. 1/09)

$25,000.00

Value at last review (June 30/10)

$29,137.86

Current valuation (Dec. 31/10)

$30,772.93

Change since last review

+$1,635.07

% change since last review

+5.61%

% change since inception (2 years)

+23.09%

Comments: The results were pretty much as expected, and the overall six-month return was very acceptable for a portfolio that is intended to protect retirees’ capital while generating good cash flow.

Changes: Again, we will increase the weighting of the  PH&N Canadian Money Market to 10% and drop the iShares DEX All Corporate Bond Index ETF, replacing it with the BMO High Yield US Corporate Bond Hedged to CAD ETF at a 10% weighting. Everything else stays the same. Here is the revised portfolio.

REVISED RRIF PORTFOLIO

Fund Name

Weight

 PH&N Canadian Money Market

10%

 PH&N Short Term Bond and Mortgage

15%

 Beutel Goodman Income

15%

 BMO High Yield US Corporate Bond

10%

 Mackenzie Sentinel Income B

15%

 BMO Guardian Monthly Dividend Classic

10%

 Fidelity Monthly Income

15%

 iShares Shares S&P/TSX REIT Sector Index

10%

Totals

100%

I’ll update the rest of the portfolios soon.

Gordon Pape is one of Canada’s best-known personal finance commentators and mutual fund experts and a regular contributor to the Fund Library. He is publisher of Mutual Funds/ETF Update, a monthly newsletter that provides advice on fund selection and strategies. Click here for more information on a three-month trial subscription.

Generic Mutual Fund Disclaimer

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated.

Personal Opinions & Recommendations Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. However, please call the author to discuss your particular circumstances.

 
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