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The good times are back for RRSP investors. Three rate cuts by the Bank of Canada over the summer and another 50 basis point cut last week have changed the investment dynamic entirely. Interest-sensitive stocks, which were beaten down when rates were on the rise, are posting gains again. High-flying growth stocks are pulling back.
We saw the first signs of this in the returns for my Internet Wealth Builder RRSP Portfolio when we reviewed it in February and reported a gain of over 7%. The latest six-month period has been even better, with the portfolio ahead 10.5%.
The RRSP portfolio was launched 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.
The portfolio contains a mix of ETFs and stocks, so readers who wish to replicate it must have a self-directed RRSP with a brokerage firm.
These are the securities we currently hold, with comments on how they have performed since the last review in my Internet Wealth Builder newsletter February. Results are as of the afternoon of Sept. 5.
iShares 0-5 Years TIPS Bond Index ETF (TSX: XSTP). This ETF 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 up $0.70 since the last review in February. We received distributions that totaled $0.752 per unit. Note that while distributions are monthly, they vary considerably, and some months the payout is zero, as was the case in the first three months of this year.
CI High Interest Savings ETF (TSX: CSAV). We added this high-interest ETF at the time of our review in August 2023. It was trading at $50 at that time, and it’s designed not to vary too much from that level. This fund invests in high-interest deposit accounts at Canada’s major banks. It earns a better rate of return than a retail customer can obtain because of its hefty purchasing power. The units are down $0.10 since the last review, and we received monthly distributions totaling $1.361 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 were hurt by recession fears, but they are now starting to recover. The units gained $3.65 since the last review. Monthly distributions totaled $0.98.
iShares Edge MSCI Minimum Volatility USA Index ETF (CAD-Hedged) (TSX: XMS). XMS invests in low-beta U.S. stocks such as Progressive Group, T-Mobile, Motorola, Eli Lilly, and IBM. “Low beta” means they are less sensitive to broad market movements and, in theory, less risky. The fund posted a gain of $4.02 in the latest period. Quarterly distributions totaled $0.217 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 $4.57 since the last review. We received two quarterly distributions for a total of $0.56.
BMO Low Volatility International Equity Hedged to CAD ETF (TSX: ZLD). This ETF focuses on international stocks and is hedged to Canadian dollars, so the currency risk is removed. It gained $1.97 in the latest period. Distributions totaled $0.34 per unit.
Brookfield Corporation (TSX: BN). Brookfield operates in a range of business areas including real estate, asset management, renewable resources, infrastructure, and insurance. The stock has made a big recovery over the past year and is up $9.76 since the last review. We received two quarterly dividends of US$0.08 each.
Enbridge Inc. (TSX: ENB). Enbridge offers an attractive yield (6.7% as of Sept. 5) and modest capital gains potential. The stock is up $7.66 since the last review and the quarterly dividend is $0.915.
Fortis Inc. (TSX: FTS). Interest-sensitive stocks took a beating when rates were on the rise, but now that the Bank of Canada has cut four times and forecasts more to come, we’re seeing a strong revival in these securities. Fortis gained $7.34 in the latest period. We received two dividends for a total of $1.18 per share.
BCE Inc. (TSX: BCE). BCE suffered a hit to its credit rating when Moody’s lowered it to just one notch above junk status, citing the company’s high debt level. Cut-throat competition in the cell phone business is also hurting. The shares are down $2.61 since the last review. We received two quarterly dividends for a total of $1.995 per share.
Interest. We have cash totaling $2,880.63, which we invested at Duca Credit Union, which was offering 5.75%. We earned $82.82 in interest.
Here is how the RRSP Portfolio stood as of Sept. 5. Commissions have not been factored in. All amounts are in Canadian dollars.
Every security in the portfolio showed a profit in the latest six-month period except for BCE (again). Overall, the portfolio was up 10.5%, due mainly to the shift by the Bank of Canada from a tightening policy to aggressive easing.
Over the 12 1/2 years since the portfolio was launched, we have a total return of 180.1%. That’s an average annual growth rate of 8.6%, well ahead of our target.
With rates declining, we are seeing a boost to asset values. So, we won’t make any changes in the securities we hold at this time. However, we are keeping a close watch on BCE and may remove it from the portfolio if we don’t see improvement in the next six months.
We will use some retained earnings to add to these positions:
CSAV – We will buy 10 units at $50.08 for a cost of $500.80. We now have 230 units with $19.90 remaining in cash.
ZEB – We’ll purchase another 10 units for $387.60. That gives us 190 units, with $5.20 left.
ENB – We will buy 10 shares for $546.40. That will use up all the retained earnings, and we’ll take $5.65 from cash to make up the difference. We now own 110 shares.
The new cash balance (including retained income) is $2,706.39. We will move it to EQ Bank, which is paying 2.75% on retirement accounts.
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.
Follow Gordon Pape on X at X.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
Notes and Disclaimer
Content © 2024 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.
Image: iStock.com/Photobuay
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