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.

4Q-2013 Update

The Sleepy Portfolio gained 8.4 percent since my previous update. During the calendar year 2013, the portfolio gained 20.3 percent making it the best year since inception.

Here’s how the portfolio looked as of January 10, 2014:

Asset Type Security #s Price Current Value Current % Delta
Cash TDB8150 7874 $1 $7,874 4.54% 0.46%
Bonds TSX: XSB 773 $29 $22,146 12.76% 2.24%
  TSX: XRB 275 $22 $6,130 3.53% 1.47%
Canada Equity TSX: XIC 1545 $22 $33,542 19.33% 0.67%
US Equity VTI 440 $96 $45,965 26.48% -3.98%
International Equity VEA 945 $41 $42,706 24.61% -2.11%
Emerging Markets VWO 170 $40 $7,388 4.26% 0.74%
Other TSX: VRE 312 $25 $7,806 4.50% 0.50%
Total       $173,557    

The fourth quarter was all about stocks. US stocks and developed market stocks posted significant gains and Canadian stocks also joined in the rally. Emerging markets were left out of the rally and treaded water.

Transactions

The US stock portion of the portfolio is now significantly above target. So, we’ll take some profits and put it to work into the lagging asset classes: short-term and real return bonds. This rebalancing also provides us with the opportunity to replace existing holdings with the Vanguard Canadian Short Bond ETF (TSX: VSB) and the BMO Real Return Bond ETF (TSX: ZRR) for reasons outlined in this previous post. To convert USD into CAD, we’ll do a Norbert Gambit by buying TD Bank on the NYSE and selling it on the TSX and save about $65 on the currency exchange.

Sell 61 shares of Vanguard Total Stock Market ETF (VTI) for total proceeds of US$5,835.

Buy 65 shares of TD Bank (NYSE: TD) for total proceeds of US$5,834.

Sell 65 shares of TD Bank (TSX: TD) for total proceeds of $6,340.

Sell 773 shares of iShares DEX Short Term Bond ETF (TSX: XSB) for total proceeds of $22,129.

Sell 275 shares of iShares DEX Real Return Bond ETF (TSX: XRB) for total proceeds of $6,117.

Buy 1043 shares of Vanguard Canadian Short Bond ETF (TSX: VSB) for total proceeds of $25,939.

Buy 534 shares of BMO Real Return Bond ETF (TSX: ZRR) for total proceeds of $8,645.

After making the transactions, the value of the portfolio dropped by $85 due to trading commissions ($72) and the spread between the sell price and the buy price ($13).

This article has 9 comments

  1. What is the average annual rate of return since the portfolio’s inception?

  2. Canadian Capitalist

    The portfolio was started in 2005 with $100K. It ended 2013 with $173K. The annualized rate of return is 6.3%.

  3. What’s the rationale for switching from XRB to ZRR? Just for the lower MER? then why not switch XIC to VCN? Also, purchasing TD is a deviation from the ETFs for diversification theme of the sleepy portfolio, no?

  4. This post is great; very educational. It would be wonderful to see the portfolio composition chart and the quarterly and annual returns for each quarter. Can you put this some where on your web site under a separate tab, as a (great) reference tool? I am personally interested in comparing this portfolio to the Canadian Couch Potato portfolio. Always learning…..

    Actually, I’m getting myself ready to become an etf investor. I may keep some good dividend paying stocks.

  5. Canadian Capitalist

    @Helen: This portfolio was initiated in 2005. There has been an update pretty much every quarter since then.

    http://www.canadiancapitalist.com/category/investing/sleepy-portfolio/

  6. Do you see any substantial difference between owning an all-govt bond holding (ie CLF) vs owning something like VSB? I currently hold CLF and am trying to decide if its even worth it to switch. I hold a similar portfolio to you and have an 80-20 split so I decided to play it safe in the bond portion with govt only since I am overweight equities.

  7. Canadian Capitalist

    @Jim: I don’t think it is worth to switch. The MER is the same and like you say, CLF has less risk than VSB, so you should get more of a boost from flight to safety in the event of a bear market that offsets the higher returns you could potentially get from VSB.

  8. I started using sleepy portfolio a couple of years ago with half of the money. I like the portfolio very much and would like to put the rest of my money into the portfolio. Should I invest all the money once or spread them out in several quarters?

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