Like the year before it, 2011 was a modest year for asset classes except that the signs were mostly negative. Despite the pronounced volatility, stocks finished modestly negative for the year. In a negative year for stocks, bonds did their job of providing ballast to a portfolio and finished in the positive column. REITs once again had a fantastic year: up a total of 24.17%. REIT returns for the past three years reads: 55%, 22% and 24% and one has to wonder how long the good times will last.

US stocks provided a welcome surprise in 2011. The S&P 500 returned a total of 2.11% in US dollar terms. Since the Canadian dollar depreciated by 2.2% against the US dollar, US stock markets provided meaningfully better relative returns for Canadian investors. Other major stock markets for Canadians were negative: the TSX Composite was down 8.9%, developed markets excluding the US were down 10.16% and emerging markets were down 16.58%.

CAD/USD -2.2%
DEX Universe Bond Index 9.67%
DEX Short Term Bond Index 4.65%
DEX Real Return Bond Index 18.35%
Canadian REITs 24.17%

TSX 60 -8.93%
TSX Composite -8.89%

S&P 500 (in CAD) 4.41%
MSCI EAFE (in CAD) -10.16%
MSCI Emerging Markets Index (in CAD) -16.58%

If you are interested in asset class returns for previous years, Norbert Schlenker of Libra Investments maintains a spreadsheet of total returns for various asset classes going back to 1970.

Sources: Bank of Canada, PC Bond Analytics, MSCI Barra and Standard & Poors.

PS: Note that percentage returns are inclusive of dividend or interest or distributions.

This article has 15 comments

  1. What is real return bonds? How come it did so well?

  2. @slacker: Here’s a very good resource on RRBs:

    http://bylo.org/rrbs.html

    Basically, RRBs are inflation-indexed bonds. The principal is adjusted each year for inflation, so effectively the coupon payments are inflation-adjusted as well.

    The reason for their outstanding performance can be explained by this graph:

    http://www.bankofcanada.ca/stats/assets/graphs/bond-yields_STATIC_V39057_en.png

    The yield has dropped more than half, so the return has been spectacular. XRB is an ETF that tracks these securities. At one time, RRBs were yielding more than 3 percent. Wish I had bought some then!

  3. Thanks CC. Just to confirm, these returns include dividends as well?

  4. Somehow I was lucky getting into XRB early, however, I didn’t load up on REITs as much as I would have liked, some timely/fortunate purchases there only to get back to allocation.

    • @Sampson: I wish I had held some RRBs myself. I don’t own any because I want to buy some directly when yields are reasonable. 0.5% sounds far too low, so I’m watching the fun from the sidelines.

      Interesting thing about REITs is that I bought some in the 08-09 crash and did not have to buy any since then even though I’ve been adding regular savings to the overall portfolio.

  5. It seems odd that your REIT allocations are still in check? I suppose it just means the other parts of your portfolio grew significantly also? possibly through new contributions?

    Re: RRBs, our purchase was very very fortunate. I’ve been itching to shift the portfolios to have much heavier bond weightings, but like you, am very reluctant to add much more at this point. We all sense big change brewing, but we’ve all been saying that for a few years now…

  6. I am not so surprised about REIT. If I am not mistaken they have to pay out 90% of their profits as dividends.
    So to a certain degree one is sure of a stable income.

    The rest of the corporations do not have to pay dividends. The management is more interested in the health of the company, and saving money or investing for development seems a better use of it rather than paying it out as dividends and I cannot blame them. The management will not be fired if they don’t pay dividends, but they will be if the company does not perform well (an exception seems to be RIM).

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  9. cynical investor:

    REITs are highly leveraged, so a relatively small decline in the value of their assets (ie, real estate) can wipe out the equity of unitholders. So, they are still reasonably risky. It explains why they fell off a cliff in 2008. Since real estate in Canada has been strong, they have mostly rebounded strongly. Only H&R of the big REITs had a true near-death experience, due to their significant exposure to one large office project in Calgary.

  10. Yeah, I hold some XRB, but I have mixed feelings about it increasing. I’m moving my bonds into a TFSA 5k at a time, and with the rise I’ll have to pay capital gains taxes. Not that it’ll be much, I’m just not looking forward to having to figure out ACB.

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  13. Hello,
    Do you know why the TSX 60 has so few reits in it?

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