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Most investors know that a well-structured portfolio needs to be well diversified. However, some fail to understand what that really means. A well-diversified portfolio not only covers all the key sectors but also provides exposure to key markets outside North America.
I created a model Global Portfolio for my Internet Wealth Builder newsletter that demonstrates how to do that using only passive exchange-traded funds (ETFs). It provides global exposure at minimal cost.
The portfolio was launched in March 2012. It is designed to provide an international model for growth-oriented investors, with the diversification and low costs that ETFs offer. The target annual rate of return is 8%-10%.
The portfolio invests in eight ETFs, covering all parts of the globe. Investors should only track this portfolio if they are willing to accept stock market risk.
Here’s a look at how our ETFs have performed since the last update in September. Results are as of the afternoon of March 21.
iShares Core S&P/TSX Capped Composite Index ETF (TSX: XIC). This ETF tracks the performance of the S&P/TSX Composite Index. The TSX has been producing decent results, and we experienced an increase of $3.61 per unit. Because of timing we received three quarterly distributions for a total of $0.77548 per unit.
iShares S&P/TSX Small Cap Index ETF (TSX: XCS). This ETF tracks Canadian small cap stocks. Small caps turned around in the latest period and the units gained $1.49. Because of timing, we received three quarterly distributions of $0.3751 per unit.
iShares US Small Cap Index ETF (CAD-Hedged) (TSX: XSU). US small cap stocks are coming on strong after lagging for a long period. The units were up $5.55 or 15.8%. We received a semi-annual distribution in December of $0.2559 per unit.
iShares Core S&P 500 Index ETF (CAD-Hedged) (TSX: XSP). This ETF tracks the performance of the S&P 500. It posted a nice gain of $8.89 (19.3%) during the September-March period. We received a year-end distribution of $0.34031 per unit.
BMO Nasdaq 100 Equity Hedged to CAD Index ETF (TSX: ZQQ). This fund provides exposure to the top 100 stocks on the Nasdaq exchange. With artificial intelligence continuing to drive tech stocks, this ETF recorded a strong gain of $23.90 (22.8%) in the period under review. We received a year-end distribution of $0.38 per unit.
iShares MSCI EAFE Index ETF (CAD-Hedged) (TSX: XIN). This ETF tracks markets in Europe, Australasia, and the Far East. Despite the on-going problems in China, the stock markets in those countries posted positive returns during the period and these units gained $4.36 (13.7%). We received a semi-annual distribution of $0.35703 per unit in December.
iShares MSCI Frontier and Select EM ETF (NYSE: FM). This ETF holds major companies in so called “frontier” countries from Nigeria to Vietnam, as well as some emerging markets stocks. These markets have not done well for us, but we’ve seen a turnaround in the past year. In the latest six months the units were up US$1.60 (6%). We received a year-end distribution of US$0.525 per unit in December.
iShares MSCI Emerging Markets ETF (NYSE: EEM). After a long losing streak, emerging markets produced a gain of $3.07 per unit in the latest six-month period. We received a nice year-end distribution of US$0.748 per unit. The result was to move us from a negative position to slightly above breakeven.
We had cash and retained income of $1,240.56, which we deposited with Duca Credit Union at 5.25%. We received interest of $32.56.
Here’s a look at how the portfolio stood on the afternoon of March 21. The Canadian and U.S. dollars are treated at par, and commissions are not considered. The initial book value was $20,002.30.
After taking a hit in 2022, the portfolio did well in 2023 and that pattern has continued this year. The total value as of March 21 was $59,607.90, up 16.9% from the September review. Nasdaq (ZQQ) was once again our best performer, with a 22.8% gain in the unit price.
As a result, our cumulative gain since inception improved to 198%. That works out to a compound average annual growth rate of 9.53%. That’s close to the top of our original target range.
The portfolio is performing as expected. I see no need to replace any components. But we have enough in retained earnings to add 10 units of XIC at $35.46 for a total cost of $354.60. We now own 310 units and have $82.43 remaining in retained earnings.
We have cash and retained income of $1,495.90. Duca Credit Union is still offering 5.25% on its high interest savings account with no minimum balance, so we’ll leave the money there. Here is a look at the updated portfolio.
I’ll review the portfolio again in my Internet Wealth Builder newsletter in September.
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/NicoElNino
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