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%.