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, dividend payments on US-listed ETFs are assumed to incur a foreign exchange fee of roughly 2 percent when they are deposited into the account. 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 and currently, pays an interest of 1.25 percent.

3Q-2013 Update

The Sleepy Portfolio has gained 10.9 percent year-to-date and 3.9 percent since my previous update.

Here’s how the portfolio looked as of October 2, 2013:

Asset Type Security #s Price Market Value Current % Delta
Cash TDB8150 8602 $1 $8,603 5.38% -0.38%
Bonds TSX: XSB 773 $28 $22,023 13.76% 1.24%
  TSX: XRB 275 $22 $6,119 3.82% 1.18%
Canada Equity TSX: XIC 1545 $20 $31,240 19.52% 0.48%
US Equity VTI 440 $88 $40,124 25.07% -2.57%
Developed Mkts VEA 945 $40 $38,830 24.26% -1.76%
Emerging Mkts VWO 170 $41 $7,212 4.51% 0.49%
Other TSX: XRE 392 $15 $5,904 3.69% 1.31%
Total       $160,054  

The third quarter can be best described as more of the same as the period before it. Interest-rate sensitive asset classes like bonds, real return bonds and REITs lost some more ground; US and developed markets stocks kept moving up and the TSX and emerging markets joined the party and rallied in the last quarter.

Transactions

Real-Estate Income Trusts (REITs) have lost about 12 percent this year (not counting distributions). As a result, the REIT holding in the portfolio — iShares S&P/TSX Capped REIT ETF (TSX: XRE) — is now significantly below target. Therefore, we will deploy the cash accumulated in the portfolio to purchase some REITs. The rebalancing event is also a perfect opportunity to replace the current REIT holding (XRE) with the cheaper Vanguard FTSE Canada Capped REIT ETF (TSX: VRE) for reasons outlined in this post.

Sell 392 shares of iShares S&P/TSX Capped REIT ETF (TSX: XRE) for total proceeds of $5,894.
Redeem 1583 units of TDB8150 for total proceeds of $1,582.
Buy 312 shares of Vanguard FTSE Canada Capped REIT ETF (TSX: VRE) for total cost of $7,476.

After making the transactions, the value of the portfolio dropped by $25 due to trading commissions ($20) and the spread between the sell price and the buy price ($5).

This article has 26 comments

  1. Nice looking gain from the initial $100k investment. I too just exited some US-based REITs that were trending the wrong way especially when the US housing sector continues to post gains month after month.

  2. Pingback: Government Shutdowns, Hockey Returns, New iPhone and Friday #ShoutOuts

  3. Canadian Capitalist

    @Brent: Thanks for your comment but I should clarify here that I’m not “exiting” from REITs. On the contrary, I’m adding to REITs because real estate has fallen below the portfolio’s target allocation of 5 percent.

    • Great performance. I’m looking into getting into REITs, but am not aware of the ticker symbols for the main ones. I’m assuming you’d recommend the TSX:XRE or is there something else more mainstream?

  4. @CC: In this portfolio, are you adding $10k every year in July?

    You mentioned it here: http://www.canadiancapitalist.com/introducing-the-sleepy-portfolio/

    • Canadian Capitalist

      @Brian: Good catch. I must have originally intended to add $10K every July but I never did. Somehow I missed editing the “add $10K every year” part out of the post during multiple updates to that post.

      Later: Post updated to reflect that no money was ever added to the Sleepy Portfolio after inception. Also, updated the annual returns up until 2012. Thanks for the catch Brian. Interesting that nobody (including myself) caught the error in all these years.

  5. Hi,

    Any chance you have list of your sleepy portfolio transactions in excel, csv or any other format? If so, can you share this list? I would like to do my own analysis on such portfolio and I would need transaction list for that.

    TIA!

    • Canadian Capitalist

      @Vidas: Unfortunately, I don’t have a handy excel transaction list. All transactions are logged in blog posts though one might have to massage some of the data (such as dividend payments) from changes in cash balance.

  6. Any reason you don’t have the Vanguard equivalent to XSB and XRB?
    Vanguard has a lower MER as far as I know.

    I have bought VSC so now I wonder I might have done something wrong, as usual I might add :).

    Mike

  7. Do you not like the currency hedged funds such as VUS?

    • Canadian Capitalist

      @Peter: I’ve never been a fan of currency hedging. I’ve explored this topic in lots of posts. See here:

      http://www.canadiancapitalist.com/category/investing/currency-hedging/

      • The thing that worries me is converting CDN to US. I have about 170K in my Scotia Itrade that I want to convert and it’s going to cost me a fair bit, I imagine.

        Is the Norbert’s Gambit still working and worthwhile? I’m a little nervous at doing this on such an amount.

    • Canadian Capitalist

      @Peter: Couple of options for you if are convinced that currency-hedging is not for you. Unhedged ETFs are now available. VUN is the unhedged counterpart of VUS.

      You can also learn to do a Gambit at Scotia. Once you become comfortable with the process, you can do Gambits in batches. As always, there may be tax consequences if you want to switch investments in taxable accounts.

      • I think I will try the gambit and buy VTI. I would think it’s preferable to VUN?

        Also, do you buy DLR at market or do a limit order?

  8. Just discovered this site. This is a great example of diversification; thanks for continuing to share such personal financial information! It really helps to have detailed examples of what other people are doing.

    I’m diversifying across sectors (but not asset classes) using a trading signal website Stock-o-matic.com. It’s been working out pretty nicely these last few months. The hardest part is actually following the signals; I have to fight the urge to take profit too early, or bail on a stock when it goes the wrong way on me (but hasn’t hit the stop yet).

  9. I have been following “sleepy portfolio” for a while and started actually using it for my invest at the beginning of this year. It is doing great. Wish I have started it much earlier.
    I am interested to see more Vanguard funds to be introduced into the portfolio if suitable.

  10. I am probably missing something obvious… but for the life of me I can’t understand something.
    Looking at XRE it lists a dividend yield of of around 5.12% (today’s price as I type this) when VRE is listed as having 2.095%.
    So it seems I am replacing a higher dividend payment with one that’s less than that.
    Can anyone explain?

    Thanks

  11. CC I read that article and it makes good points.
    However from an allocation perspective I do not understand this… why would you replace an ETF thay yields double for another one which yields half?
    Assuming more or less they hold the same stuff as Holdings?

  12. hi,
    when will you be posting sleepy and mini sleepy portfolio update for Q4-2013.

    • Canadian Capitalist

      Both updates are every quarter. Sleepy Mini is due for an update this month. Sleepy Portfolio is not due until the New Year.