Sleepy Portfolio

The 2012 Sleepy Portfolio Report Card

January 28, 2013

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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 simply a model portfolio; it reflects investment returns that can be obtained in the real world by accounting for costs such as spreads, trading commissions, MERs, foreign exchange conversion charges etc. For example, when the portfolio was first assembled in 2005, it cost $29 to make a trade and 1.5 percent to initially convert Canadian dollars to buy US securities. Note, however, that the portfolio is assumed to be held in a registered account, so it does not take taxes into account.

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.

4Q-2012 Update

The Sleepy Portfolio gained 2.52 percent since my previous update. During the calendar year 2012, the Sleepy Portfolio gained exactly 10 percent. It is instructive to compare the current portfolio holdings with that of year end 2011. We find that over the course of the year, positions in real return bonds and REITs were trimmed back and additions were made to positions in Canadian equity, Developed Markets ex US and emerging markets. Rebalancing the portfolio helped because developed markets and emerging markets were among the best performing asset classes of 2012.

Here’s how the portfolio looked as of December 31, 2012:

Asset Type Security #s Price Current Value % Portfolio Target % Delta
Cash TDB8150 9144 $1 $9,144 6.34% 5.00% -1.34%
Bonds TSX: XSB 705 $29 $20,304 14.07% 15.00% 0.93%
  TSX: XRB 275 $26 $7,090 4.91% 5.00% 0.09%
Canada Equity TSX: XIC 1445 $20 $28,380 19.66% 20.00% 0.34%
US Equity VTI 440 $73 $32,063 22.22% 22.50% 0.28%
International Equity VEA 945 $35 $33,106 22.94% 22.50% -0.44%
Emerging Markets VWO 170 $45 $7,528 5.22% 5.00% -0.22%
Other TSX: XRE 392 $17 $6,711 4.65% 5.00% 0.35%
Total       $144,325    

There will be no new transactions because all asset classes are now more or less on target.

Portfolio Expenses

It is worth noting that the weighted average MER of the portfolio is currently a miserly 0.21 percent. That means the portfolio incurs a MER cost of just under $210 per year per $100,000 balance. If the same portfolio were invested in typical Canadian mutual funds that charge a MER of 2.5 percent, the MER cost would be $2,500.

Of course, a portfolio composed of ETFs will incur trading costs. But the Sleepy Portfolio gets by with very little trading. During the last year, five trades were made in the portfolio for a total trading cost of $50. The portfolio also incurred costs involved in converting currency to purchase US-listed ETFs. These costs added up to about $51. Expressed as a percentage of average portfolio value during the year, trading costs amounted to just under 4 basis points. The total expenses incurred by the portfolio in 2012 was therefore just 25 basis points.

Sleepy Mini Portfolio Q4-2012 Update

December 12, 2012

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Since my previous update, the Sleepy Mini Portfolio has gained 3.75 percent due to a rally in the stock markets over the fall months. It is now just over five years since the Sleepy Mini Portfolio was launched in August 2007 with an initial investment of $1,000 with a target allocation of 20% bonds, 20% Canadian stocks, 30% US stocks and 30% International stocks. Another $1,000 was added to the portfolio every quarter since then for a total investment of $21,000. Here’s how the portfolio looks as of December 11, 2012:

TDB909 – Canadian Bonds – $4,629 (19.4%)
TDB900 – Canadian Equities – $4,738 (19.9%)
TDB902 – US Equities – $7,011 (29.4%)
TDB911 – International Equities – $7,457 (31.3%)
Total – $23,835
Total Invested – $21,000

The idea behind the Sleepy Mini Portfolio is to follow a mechanical investment strategy of committing savings to a long-term portfolio on a regular basis. Therefore, we will add another $1,000 to the portfolio and rebalance it to the original target allocation using this rebalancing spreadsheet. Here are the results:

Transactions

TDB909 – TD Canadian Bond Index (e-Series) – Buy units for $337.63.
TDB900 – TD Canadian Index (e-Series) – Buy units for $228.79.
TDB902 – TD US Index (e-Series) – Buy units for $433.58.

Inspite of the economic troubles in Europe, International markets have outperformed other markets over the past quarter. Therefore, we will skip making a contribution to the International stock portion of the portfolio.

Sleepy Mutual Fund Portfolio as of Dec. 11, 2012

Readers are often curious about the annualized returns of the Sleepy Mini Portfolio. It is easy to calculate using the XIRR function in Microsoft Excel. Plugging in the dates, contributions and the current portfolio value tells us that the Sleepy Mini Portfolio returned an annualized 5.3 percent over the past five years.

[NB: An earlier version reported the rate of return of this portfolio incorrectly as 7.2 percent.]

Sleepy Portfolio 3Q-2012 Update

October 31, 2012

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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 simply a model portfolio; it reflects investment returns that can be obtained in the real world by accounting for costs such as spreads, trading commissions, MERs, foreign exchange conversion charges etc. The portfolio is assumed to be held in a registered account, so it does not take taxes into account. 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.

3Q-2012 Update

The Sleepy Portfolio has gained a modest 1.8 percent since my previous update. The bulk of the gains were provided by dividend payments. Pretty much every single asset class stayed flat since my previous update. The only exception was REITs, which dropped 4.2 percent during the past quarter. REITs did gain about 10 percent in my 2Q-2012 update and the portfolio benefited slightly from selling some REITs in the previous update. Year-to-date the portfolio is up 7.3 percent.

Here’s how the portfolio looked as of October 31, 2012:

Sleepy Portfolio Balance as of Oct. 31, 2012

Since the cash position is significantly above target and emerging markets are significantly below target, we’ll perform just one rebalancing transaction this quarter.

Transaction

Buy 34 shares of VWO at $41.49. Proceeds = $1,441.82. (includes trading commission of $10 and currency conversion charge of 1.5 percent).