Canadian Capitalist » Sleepy Portfolio

The 2011 Sleepy Portfolio Report Card

Canadian Capitalist — Wed, 04 Jan 2012 08:26:13 +0000

Background: I started the Sleepy Portfolio in 2005 to benchmark my personal portfolio, which at that time was mostly invested in individual stocks. The portfolio started off with an initial outlay of $100,000 but no new money has been added since. This is not a model portfolio; it reflects investment returs that can be obtained in the real world because it accounts for costs such as spreads, trading commissions, MERs, foreign exchange conversion charges etc. The portfolio has a target allocation of 5% cash, 15% short bonds, 5% real return bonds, 20% Canadian stocks, 22.5% US stocks, 22.5% Europe and Pacific, 5% Emerging markets and 5% REITs. The entire portfolio (apart from the cash portion) is invested in broad-market, exchange-traded funds (ETFs) trading in the Canadian and US stock exchanges. The cash portion is invested in a high-interest savings account that is available through many discount brokers..

Despite the tremendous volatility in the stock markets, the Sleepy Portfolio was little changed in 2011. The portfolio gained 4.32% during the 4th quarter of 2011 (see the report card for 3Q-2011 here) but lost 1.16% in value during the whole year (see the report card for 2010 here). As I mentioned in my previous post, most stock markets were negative for the year but REITs, bonds and US stocks contributed positively to the portfolio. The depreciating Canadian dollar boosted foreign stock returns somewhat.

In keeping with its name, the only transactions in the portfolio were dividends, interest and distributions received from the component securities. No trading was done and zero trading commissions were incurred. The weighted average of the MERs charged by the component ETFs works out to about 21 basis points per year, which means the Sleepy Portfolio costs about $275 every year or about 75 cents a day — less than half the cost of a large double-double these days. If an investor were to assemble a portfolio such as this out of typical Canadian mutual funds, it will cost at least 10 times more or about $2,750 per year or $7.50 every single day.

Here’s how the portfolio looked as of December 31, 2011:

Portfolio income during the quarter totalled $1,639.54. For the year 2011, the portfolio generated a total of $3,551 and the portfolio trailing cash yield works out to 2.7%. Since inception, the portfolio has returned an annualized 3.96%.

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Sleepy Mini Portfolio Q4-2011 Update

Canadian Capitalist — Thu, 01 Dec 2011 02:36:26 +0000

You won’t know it from the wild swings experienced by the stock markets in the recent past but the Sleepy Mini Portfolio gained 1.65% since my previous update. To be fair, it should be pointed out that the portfolio showed gains for the last quarter only after the significant rally of the past couple of days. If I had computed returns the previous day the portfolio would have shown a loss of 1.1%.

It is, perhaps, unsurprising to see that bonds have held up their value in the past quarter but it is surprising to see that US markets have held up relatively well compared to Canadian and other foreign markets. Note that the Sleepy Mini Portfolio started out with an initial investment of $1,000 in August 2007 and $1,000 was added to the portfolio every quarter ever since. A total of $17,000 has been invested in the portfolio and as of November 30, 2011, here’s how it looks:

TDB909 – Canadian Bonds – $3,622 (20.0%)
TDB900 – Canadian Equities – $3,428 (19.0%)
TDB902 – US Equities – $5,719 (31.6%)
TDB911 – International Equities – $5,315 (29.4%)
Total – $18,083
Total Invested – $17,000

Transactions

TDB909 – TD Canadian Bond Index (e-Series) – Buy units for $194.23.
TDB900 – TD Canadian Index (e-Series) – Buy units for $389.12.
TDB911 – TD International Index (e-Series) – Buy units for $416.66.

We will not be adding any new money to the TD e-Series US Index (TDB902) because the new addition ($6.39) is much less than the minimum additional investment of $100. So, we’ll simply add that amount to the new money added to the TD e-Series International Index (TDB911) fund.

In a comment in one of the earlier posts, a reader wondered how much this portfolio has returned since inception. Using the Excel XIRR function, the annualized return works out to 2.8%. Hardly earth shattering but it is early days for the portfolio yet. I would expect a portfolio such as this to return 3.5% in real terms over the long term.

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Sleepy Portfolio 3Q-2011 Report Card

Canadian Capitalist — Mon, 03 Oct 2011 02:40:39 +0000

Background: I started the Sleepy Portfolio in 2005 to benchmark my personal portfolio, the bulk of which was invested in individual stocks at that time. The portfolio started off with an initial cash infusion of $100,000 but no new money has been added since. This is a real world portfolio: every transaction is made at the bid price, commissions are paid and foreign exchange conversions are done at retail rates. The portfolio has a target allocation of 5% cash, 15% short bonds, 5% real return bonds, 20% Canadian stocks, 22.5% US stocks, 22.5% Europe and Pacific, 5% Emerging markets and 5% REITs. The entire portfolio (apart from the cash portion) is invested in broad-market, exchange-traded funds (ETFs) trading in the Canadian and US stock exchanges. The cash portion is invested in a high-interest savings account that is available through many discount brokers.

The third quarter was a bad one for the stock markets: the TSX Composite fell 12.6 percent, the S&P 500 fell 14.3 percent, EAFE markets fell 19.60 percent in US dollar terms and Emerging markets fell 23.2 percent in US dollars. The Canadian dollar lost quite a bit of its value against the US dollar as well losing 8.7 percent. Since half the value of the Sleepy Portfolio is denominated in US dollars (note that though VEA and VWO are denominated in US dollars, Canadian investors are exposed to currency risk between the CAD and the basket of currencies that the ETF holdings are denominated in — Pound, Yen, Euro etc., not the CAD-USD exchange rate) , the loss in value of the Canadian dollar helped cushion the steep drop in stock values. As of October 1, 2011, the Sleepy Portfolio is valued at $125,766, a loss of 7.7 percent in the third quarter of 2011. Bonds held up quite nicely: both XSB (short-term Canadian bonds) and XRB (real-return bonds) posted modest gains. Canadian REITs were a surprise. XRE, the REIT ETF, was down slightly.

Here’s how the portfolio looked as of October 1, 2011:

The only activities in the portfolio during the quarter were distributions from the component ETFs, which totalled $606. If EAFE markets continue to slide down even more, we’ll be selling a bit of cash, bonds and REITs and buying VEA.

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Sleepy Mini Portfolio Q3-2011 Update

Canadian Capitalist — Thu, 01 Sep 2011 02:44:44 +0000

Since my previous update roughly three months back, the Sleepy Mini Portfolio has lost 6.4% of its value due to sizable corrections experienced by stock markets around the world. Every stock fund in the portfolio dropped in value but bonds fulfilled their role of providing a ballast. Recall that the portfolio started out with an initial investment of $1,000 in August 2007 and $1,000 was added to the portfolio every quarter ever since:

TDB909 – Canadian Bonds – $3,701 (22%)
TDB900 – Canadian Equities – $3,342 (19.9%)
TDB902 – US Equities – $4,953 (29.5%)
TDB911 – International Equities – $4,792 (28.5%)
Total – $16,789
Total Invested – $16,000

Despite the market volatility, the whole point of a portfolio such as this is to simply add money periodically while resisting the urge to divine which way the markets are headed. With that in mind, we’ll now add another $1,000 to the portfolio and rebalance it according to our original asset allocation — 20% bonds, 20% Canadian stocks, 30% US stocks and 30% international stocks — using this rebalancing spreadsheet. Here are the results:

Transactions

TDB909 – TD Canadian Bond Index (e-Series) – Sell units for $143.63.
TDB900 – TD Canadian Index (e-Series) – Buy units for $215.43.
TDB902 – TD US Index (e-Series) – Buy units for $383.48.
TDB911 – TD International Index (e-Series) – Buy units for $544.72.

Notice how rebalancing requires selling an asset class that has increased in value (bonds in this case) and buying asset classes that have declined in value (stocks in this case). It happens to be the mirror image of what we were doing earlier this year when the bulk of our contributions went to bonds which was the laggard asset class.

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Sleepy Portfolio 2Q-2011 Report Card

Canadian Capitalist — Mon, 04 Jul 2011 04:59:09 +0000

I started the Sleepy Portfolio in 2005 to benchmark my personal portfolio, the bulk of which was then invested in individual stocks. The portfolio started off with an initial cash infusion of $100,000 but no new money has been added since. The portfolio has a target allocation of 5% cash, 15% short bonds, 5% real return bonds, 20% Canadian stocks, 22.5% US stocks, 22.5% Europe and Pacific, 5% Emerging markets and 5% REITs. The entire portfolio (apart from the cash portion) is invested in broad-market, exchange-traded funds (ETFs) trading in the Canadian and US stock exchanges. The cash portion is invested in a high-interest savings account that is available through many discount brokers.

The market value of the Sleepy Portfolio remains more or less unchanged since my previous report. As of July 1, 2011, the Sleepy Portfolio is valued at $136,263, a slight loss of 0.62% in the second quarter of 2011. The Portfolio would have lost much more but for the significant rally in the stock markets in the last week of June. The asset class that gained the most during the quarter was real return bonds. The biggest losers were Canadian stocks (down 6.5%) and emerging markets (down 3.0%). Surprisingly, given all the economic troubles in Europe, EAFE stocks actually gained 1% during the quarter. Other asset classes remained more or less flat during the quarter.

Here’s how the portfolio looked as of July 1, 2011:

If the Sleepy Portfolio had a higher value, it would make sense to rebalance by selling REITs and Real Return Bonds and buying US and EAFE stocks. But here it is not economical to trim REITs by 1.3%, which works out to just $112. Therefore, we won’t be making any transactions in the portfolio. The only activities in the portfolio during the quarter were the dividend payments from the component ETFs, which totalled $632.

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Sleepy Mini Portfolio Q2-2011 Update

Canadian Capitalist — Mon, 06 Jun 2011 03:16:00 +0000

The Sleepy Mini Portfolio gained 1.21 percent since my previous update roughly three months back. The portfolio started out with an initial investment of $1,000 in August 2007 and $1,000 is added to the portfolio every quarter:

TDB909 – Canadian Bonds – $3,393 (20%)
TDB900 – Canadian Equities – $3,315 (19.6%)
TDB902 – US Equities – $5,183 (30.6%)
TDB911 – International Equities – $5,049 (29.5%)
Total – $16,941
Total Invested – $15,000

We’ll now add another $1,000 to the portfolio and rebalance it according to our original asset allocation — 20% bonds, 20% Canadian stocks, 30% US stocks and 30% international stocks — using this rebalancing spreadsheet. Note that you can invest a smaller sum of money than $1,000 if you sign up for a Pre-Authorized Purchase Plan where the minimum investment per fund is only $25. You can also invest more frequently than once every three months.

Transactions

TDB909 – TD Canadian Bond Index (e-Series) – Buy units for $195.05.
TDB900 – TD Canadian Index (e-Series) – Buy units for $272.88.
TDB902 – TD US Index (e-Series) – Buy units for $198.86.
TDB911 – TD International Index (e-Series) – Buy units for $333.21.

And now the portfolio can go back to sleep for another quarter.

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Sleepy Portfolio 1Q-2011 Report Card

Canadian Capitalist — Tue, 05 Apr 2011 03:53:29 +0000

I started the Sleepy Portfolio in 2005 to benchmark my personal portfolio, the bulk of which was then invested in individual stocks. The portfolio started off with an initial cash infusion of $100,000 but no new money has been added since. The portfolio has a target allocation of 5% cash, 15% short bonds, 5% real return bonds, 20% Canadian stocks, 22.5% US stocks, 22.5% Europe and Pacific, 5% Emerging markets and 5% REITs. The entire portfolio (apart from the cash portion) is invested in broad-market, exchange-traded funds (ETFs) trading in the Canadian and US stock exchanges. The cash portion is invested in a savings account such as the Renaissance High-Interest Savings Account (Code: ATL5000) that is available through many discount brokers.

The Sleepy Portfolio made steady gains in the first quarter of 2011. Despite the market turmoil due to the devastating Japanese Earthquake and the political events in the Middle East, the portfolio eked out a 3.3% gain during the quarter. REITs were the biggest winners in the first quarter gaining close to 10%. Canadian stocks also had a good quarter gaining close to 6%. But return from foreign stocks was muted by the continuing strength of the Canadian dollar. US stocks gained about 3.5% and EAFE and Emerging Markets both gained about 1.5%.

Here’s how the portfolio looked as of April 4, 2011:

If the Sleepy Portfolio had a higher value, it would make sense to rebalance by selling some Canadian Equities and REITs and buying some US and EAFE stocks. But here it is not economical to trim Canadian stocks by 1.3%, which works out to just $390. Therefore, we won’t be making any transactions in the portfolio. The only activities in the portfolio during the quarter were the dividend payments from the component ETFs, which totalled $673.

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Sleepy Mini Portfolio Q1-2011 Update

Canadian Capitalist — Thu, 03 Mar 2011 03:19:48 +0000

The Sleepy Mini Portfolio gained another 5.1 percent since my previous update approximately one quarter back. The portfolio was started with an initial investment of $1,000 in August 2007 and it is assumed that periodic savings of $1,000 is added to portfolio every quarter. Here’s how the portfolio components were valued as of February 28, 2011:

TDB909 – Canadian Bonds – $2,964 (19.0%)
TDB900 – Canadian Equities – $3278 (20.8%)
TDB902 – US Equities – $4,673 (30.7%)
TDB911 – International Equities – $4,822 (29.5%)
Total – $15,737
Total Invested – $14,000

We’ll now add another $1,000 to the portfolio and rebalance it to the original asset allocation — 20% bonds, 20% Canadian stocks, 30% US stocks and 30% international stocks — using this rebalancing spreadsheet. As an aside, if you are using TD e-Series funds, you can invest a smaller sum of money than $1,000. If you sign up for a Pre-Authorized Purchase Plan, the minimum required per fund is only $25. That means, you need just $125 to start a Sleepy Mini Portfolio such as this one (you would, of course, rebalance, say, once every year).

Transactions

TDB909 – TD Canadian Bond Index (e-Series) – Buy units for $352.89.
TDB900 – TD Canadian Index (e-Series) – Buy units for $100.00.
TDB902 – TD US Index (e-Series) – Buy units for $347.66.
TDB911 – TD International Index (e-Series) – Buy units for $199.45.

Once again, the Sleepy Mini Portfolio does not end up with a precise 20-20-30-30 asset allocation because the TDB900 requires a minimum investment of $100 but the amount to buy came out to $69.34. Therefore, I bumped up the Canadian stock allocation slightly at the expense of Canadian bonds.

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The 2010 Sleepy Portfolio Report Card

Canadian Capitalist — Tue, 04 Jan 2011 03:10:46 +0000

[Note: I started the Sleepy Portfolio in 2005 to benchmark my personal portfolio, which was then invested mostly in individual stocks. The portfolio started off with an initial cash infusion of $100,000 but no new money has been added since. The portfolio has the following asset allocation: 5% cash, 15% short bonds, 5% real return bonds, 20% Canadian stocks, 22.5% US stocks, 22.5% Europe and Pacific, 5% Emerging markets and 5% REITs. The entire portfolio (apart from the cash portion) is invested in broad-market, exchange-traded funds (ETFs) trading in the Canadian and US stock exchanges. The cash portion is invested in High-Interest Savings Accounts available through many discount brokers.]

With markets continuing to rally through the fall, the Sleepy Portfolio, which is mostly invested in broad-market Exchange-Traded Funds gained a further 4.55% and ended the year up 9.56%. As I pointed out in yesterday’s post, Canadian stocks and REITs were the best performers in 2010. The Canadian Dollar gained 5.7% versus the US Dollar and dragged down returns from international markets. In keeping with the sleepy nature of the portfolio, the portfolio saw just one transaction for the entire year resulting in an additional trading expense of just 0.8 basis points (0.008 percent).

Here’s how the portfolio looked at the end of 2010:

The cash balance of the portfolio increased substantially during the quarter due to dividend income. The rally in the stock markets has also left the bond component below target. So, that’s where the accumulated cash will be channelled.

Transaction

Buy 110 shares of XSB at 28.93 plus $9.99 commission.

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Sleepy Mini Portfolio Q4-2010 Update

Canadian Capitalist — Wed, 01 Dec 2010 04:06:52 +0000

The Sleepy Mini Portfolio returned 4.7 percent since my previous update. The portfolio was started with an initial investment of $1,000 in August 2007 and I assume that savings of $1,000 are added to the portfolio every 90 days. Here’s how the portfolio components were valued as of November 30, 2010:

TDB909 – Canadian Bonds – $2,633 (19.0%)
TDB900 – Canadian Equities – $2,890 (20.8%)
TDB902 – US Equities – $4,260 (30.7%)
TDB911 – International Equities – $4,094 (29.5%)
Total – $13,877
Total Invested – $13,000

We’ll add another $1,000 to the portfolio and rebalance it to the target asset allocation — 20% bonds, 20% Canadian stocks, 30% US stocks and 30% International stocks. I use this spreadsheet to divide up the new money between the portfolio components.

Transactions

TDB909 – TD Canadian Bond Index (e-Series) – Buy units for $328.18.
TDB900 – TD Canadian Index (e-Series) – Buy units for $100.00.
TDB902 – TD US Index (e-Series) – Buy units for $202.84.
TDB911 – TD International Index (e-Series) – Buy units for $454.48.

The Sleepy Mini Portfolio does not end up with a precise 20-20-30-30 asset allocation because the TDB900 requires a minimum investment of $100 but the amount to buy came out to $85.50. Therefore, I bumped up the Canadian stock allocation slightly at the expense of Canadian bonds.

A formulaic approach to investing such as this helps to mitigate much of the emotional traps that await investors. And you can get it done in less time than it takes to shop for a couple of Christmas gifts.

NB: I picked 5 entries at random for The MoneySense Guide to Retiring Wealthy giveaway. I haven’t heard back from two of the winners, Catherine and Stella. Can the winners please check their email accounts and send me a reply? If I don’t hear from you soon, I’ll be picking out two new winners. Thank you.

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