Tidying up the Sleepy Portfolio

I use the Sleepy Portfolio to reflect the asset allocation of our portfolios and to benchmark our returns. The Sleepy Portfolio fulfilled a valuable benchmarking role because I was mostly invested in individual securities. Now, more than 60% of our total portfolio is in index funds and our future portfolio performance will match the Sleepy Portfolio’s.

There have been many changes since the Sleepy Portfolio was introduced. Cheaper ETFs like VWO and VEA are now available. Foreign content restrictions on RRSP accounts have been eliminated. I am now more familiar with ETFs than I was two years back. I am also tweaking the asset allocation slightly so that foreign stocks reflect their respective proportion in world market capitalization, US equity at 23%, EAFE equity at 22% and emerging markets at 5% and reducing allocation to Canadian equities slightly to 20%. To reflect these changes, I am going to clean up the Sleepy Portfolio by making the following transactions:

1. Sell XMD: The original intention of adding XMD to the portfolio was to complement the XIC, which originally held the 60 largest capitalization stocks in the TSX. Now, XIC tracks the TSX Composite Index and would be a good proxy for the performance of the Canadian equity market.
2. Replace XSP, IWM and IWR with VTI: The Vanguard US Total Stock Market Index Fund (VTI) has a MER of 0.07% compared to 0.24% for XSP (currency-neutral S&P 500 index fund), 0.20% for the IWM (small-cap index) and 0.20% for the IWR (mid-cap index). The US equity portion is currently split equally among the three funds, over weighting the mid- and small-cap funds relative to the market.
3. Replace XIN with VEA: XIN is the currency-neutral index fund that tracks developed markets in Europe and Japan. Vanguard recently introduced the Europe Pacific ETF that tracks the same market without currency adjustments and is 0.35% cheaper compared to XIN.
4. Replace XBB with XSB and XRB: I agree with the contention that long bonds do not have an attractive risk/reward profile. I am further splitting the 20% allocated to XBB into 15% for the XSB and 5% for the XRB. Note that in your personal portfolios, you may want to buy real return bonds directly.
5. Replace EEM with VWO: The Vanguard Emerging Markets Index fund (VWO) costs less than half that of the current holdings in EEM.

The current holdings of the Sleepy Portfolio can be seen in the following table: