Pape’s mutual fund portfolio reviews

10-year update

Although ETFs have become increasing popular in recent years, mutual funds continue to hold a much larger share of the market. So we have maintained coverage of the model portfolios I created in 2009 in the what was then the Mutual Funds Update newsletter. This year marks their tenth anniversary, so let’s see how they have performed in this final update. Results are as of Dec. 31.

Defensive Portfolio

This portfolio is best suited to non-registered accounts where safety and income are the top priorities. The fund targets an average annual compound rate of return between 4% and 6%.

Performance to date
Initial value (Jan. 1/09) = $25,000
Value at last review (June 30/18) = $39,612.80
Current value = $38,694.80
Change since last review = -$918.00
Return since last review = -2.32%
Change since inception (10 years) = 54.78%
Annualized compound rate of return = 4.47%

Comments: It was a bad six months for stocks, but the bond side of this portfolio kept the loss to a minimum of 2.32%. That was in line with the low-risk nature of this portfolio. We ended the 10 years with an average annual gain of 4.47%, which was within our target range.

RRSP Portfolio

This portfolio is designed for RRSP accounts. Risk is kept to a reasonable level (we aim for a 60/40 equity/bond split) and the annual target rate of return is in the 6% to 7% range.

Performance to date
Initial value (Jan. 1/09) = $25,000
Value at last review (June 30/18) = $46,616.27
Current value = $44,814.51
Change since last review = -$1,801.76
Return since last review = -3.87%
Change since inception (10 years) = 79.26%
Annualized compound rate of return = 6.01%

Comments: Here again, the equity funds were hit hard during the period. The Beutel Goodman American Equity Fund held up best, finishing slightly below break-even. The average annual return over 10 years was 6.01%, at the bottom end of our targeted range.

RRIF Portfolio

Safety and cash flow are the twin goals of this portfolio. The objective is to provide enough income to allow investors to avoid dipping into capital for as long as possible. The target return is 6% per year.

Performance to date
Initial value (Jan. 1/09) = $25,000
Value at last review (June 30/18) = $40,514.73
Current value = $39,559.23
Change since last review = -$955.50
Return since last review = -2.36 %
Change since inception (10 years) = 58.24%
Annualized compound rate of return = 4.70%

Comments: This portfolio never lived up to our expectations, showing how difficult it is to correctly balance risk and return in a RRIF. We ended the 10 years with an average annual compounded rate of return of 4.7%, which was well below our 6% target. The only consolation was this portfolio did better than holding all the money in GICs.

Growth Portfolio

The portfolio is designed for investors seeking long-term growth and who are willing to accept a greater level of risk to achieve that goal. As you might expect, the portfolio is heavily weighted to equities, however we avoid high-risk funds. The target annual rate of return is 8%+.

Performance to date
Initial value (Jan. 1/09) = $25,000
Value at last review (June 30/18) = $63,716.07
Current value = $58,066.63
Change since last review = -$5,649.44
Return since last review = -8.87%
Change since inception (10 years) = 132.27%
Annualized compound rate of return = 8.79%

Comments: This was the worst period in the portfolio’s history as all the equity funds recorded losses. Three of those were in double-digit territory, with the result that we lost 8.87% over the six months.

It’s not unexpected to run into bad markets over a 10-year cycle. Despite the latest loss, big gains in previous years allowed us to finish with an average annual rate of return of 8.79%.

At this point, I will discontinue the monitoring of these portfolios. A 10-year history is an adequate time from to gauge long-term performance. Three of the four portfolios achieved their target rates of return, which is an acceptable result.

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

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.