[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.]

Since I took early October off to attend to personal matters, I forgot to provide an update on how the Sleepy Portfolio performed in 3Q of 2009. Not that it matters. The entire point of a Sleepy Portfolio is that it requires minimum investor intervention and the best strategy would be to ignore it as much as possible. But, as I noted in my Q2 update, dividend payments from portfolio components had pushed up cash levels in the portfolio to more than 8% against a target of 5%. The market crash had also pushed up the bond portion to roughly 4.5% over target and left Canadian stocks, US stocks, International stocks and REITs below their targets.

Subsequent to my Q2 2009 Sleepy Portfolio update, I rebalanced the Sleepy Portfolio in early July selling a portion of the holdings in iShares CDN Short Bond ETF (XSB) and buying iShares CDN S&P/TSX Composite ETF (XIC), iShares CDN REIT Sector ETF (XRE), Vanguard Total Market ETF (VTI) and Vanguard Europe Pacific ETF (VEA).

XSB: Sell 95 shares at $29.06 (plus $9.99 in commissions).
XIC: Buy 67 shares at $16.31 (plus $9.99 in commissions).
XRE: Buy 175 shares at $9.23 (plus $9.99 in commissions).
VTI: Buy 40 shares at $46.54 (plus $9.99 in commissions).
VEA: Buy 32 shares at $29.24 (plus $9.99 in commissions).

As an aside, one sell and four buys accounted for *all* the trading activity of the Sleepy Portfolio for the entire year. Thus, the trading costs of the portfolio add up to an extra expense of (prepare to be shocked) just 5 basis points (0.05%). Adding the trading costs to the weighted average MER of the portfolio at 22 basis points brings the total expense to less than 30 basis points (0.30%).

Here’s how the portfolio looked at the end of 3Q 2009 (it was up 8% since 2Q 2009):

[Sleepy Portfolio at the end of 3Q 2009]

This article has 14 comments

  1. So simple, so easy to re-balance.

    I’m a few years behind you CC, my wife’s portfolio is like the your ‘Sleepy’ one, except a bit more slicing and dicing (11 holdings including cash). I use it as a benchmark to my stock portfolio.

    Its so much easier to track hers than mine, that alone has got me wanting to simplify.

    How long did it take for you to decide holding individual stocks was just too cumbersome.

  2. Looks like you sold a lot of odd lots of stock. Do you think you paid a premium because of this? It used to be that if you didn’t trade in lots of 100 you would be penalized.

  3. Canadian Capitalist

    @Sampson: The Sleepy Portfolio is pretty much how the portfolios I manage look like. I switched over to an indexed portfolio slowly over 2007 to 2009. I’m glad I did because I owned what turned out to be real stinkers: GE, AIG, ETFC to name a few.

    I moved fully to indexing when I realized that it was just too much work picking stocks and tending to a portfolio. And it seemed like I wasn’t getting much (if any) extra returns for all that work. Not to mention, it is close to impossible to get full understanding of many financial companies. AIG is a prime example. It is extremely hard even for professional investors to get a handle on what was happening at that company.

    This year, I decided to get rid of all direct Canadian stock holdings as well. I’m almost fully invested in XIU. I might add some small cap exposure in the future but other than that all the tweaking is done.

    @Smac20: Even in my personal portfolios I own odd lots of ETFs. I haven’t found that to be an issue. I typically put in a limit order a penny or two above the current ask and I haven’t had any problems in getting the orders filled. Perhaps, it was an issue in the past but I haven’t found it to be a limitation.

  4. Interesting… it’s a good concept, however, if an investor is willing to be semi-active, they can realize gains without significant risk by holding a small basket of stocks. Using some basic technical indicators and some key fundamentals (i.e. Revenue), investors can make wise choices.

  5. Only 17% gain in 4 years, that’s not for me I would have said when I started investing (roughly in 2005).

    Now I would be happy if my non-registered accounts showed only 15% loss like my RRSP account (due to the contribution limit I had to be more selective plus I invested in TD e-Funds)

  6. I am wondering what is the dividend yield of such a portfolio… do you have the number ?
    I would like my TFSA to be future retirement money available in addition of my RRSP. I am looking for a portfolio that would be indexed ETF based and also bring decend amount of dividend that could be drip in the future…
    would that kind of portfolio a solution ? any suggestion ? Thanks.

    • Canadian Capitalist

      @RatRace: The yield of this portfolio should be around 2.5 to 3 percent. Since, the stock portion of the portfolio is invested in broad-market funds, the dividend yield is low. You could boost the yield a bit by giving the portfolio a value tilt. I’ll probably do a future post on the dividend yield of this portfolio. Thanks for the idea.

  7. @RatRace,

    My wife’s ETF portfolio has a yield of over 4%. We made a bunch of good buys earlier this year, combined with some higher yielding securities (REIT ETFs) and some ‘value’ based indexes make for some pretty good dividends/distributions. Keep in mind some ETFs (small caps, and some foreign/emerging markets) don’t have any distributions at all.

  8. @Canadian Capitalist: Great! I am looking forward to read about dividend yield with your portfolio.

    Out of curiosity, I calculated the dividend yield I got this year for my TD e-series portfolio account. It’s 2% with the following : 16% cdn bond, 28% Intl, 28% cdn idx, 28% us idx.

  9. Could you please explain why there is a difference between what you suggest for the canadian equity in the sleepy portfolio, XIC, and what you have in your personal portfolio, XIU?

    I understand that XIC has its weightings capped but why have you chosen XIU for your personal porfolio?


    • Canadian Capitalist

      @Matt: When I included XIC in the Sleepy Portfolio, the memory of Nortel’s heavy weighting in XIU was still fresh. In fact, IIRC, XIC did not even track the S&P TSX Composite then. It was a capped version of the TSX 60 while XIU tracks the uncapped TSX 60 index.

      There is likely to be very little difference between XIU and XIC in terms of returns over the long haul. XIU is slightly cheaper and more liquid. XIC tracks a broader index but over the long-term, they should pretty much be in sync because XIU’s components account for the bulk (roughly 80%) of XIC’s holdings. I picked XIU because it is slightly cheaper.

  10. What T-Bill Fund do you use for the cash portion of your portfolio? I had looked into the Claymore Premium Money Market ETF … given the current return it doesn’t make sense after trading fees.

  11. I’m curious about the choice to keep 5% in cash. What’s behind this? Is it so that you have some cash on hand in case your “sleep” is interrupted by some opportunity? Isn’t having cash in a long-term portfolio a bit of a missed opportunity? j

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