Background: I started the Sleepy Portfolio in 2005 to benchmark my personal portfolio, the bulk of which was invested in individual stocks at that time. The portfolio started off with an initial cash infusion of $100,000 but no new money has been added since. This is a real world portfolio: every transaction is made at the bid price, commissions are paid and foreign exchange conversions are done at retail rates. 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.
The third quarter was a bad one for the stock markets: the TSX Composite fell 12.6 percent, the S&P 500 fell 14.3 percent, EAFE markets fell 19.60 percent in US dollar terms and Emerging markets fell 23.2 percent in US dollars. The Canadian dollar lost quite a bit of its value against the US dollar as well losing 8.7 percent. Since half the value of the Sleepy Portfolio is denominated in US dollars (note that though VEA and VWO are denominated in US dollars, Canadian investors are exposed to currency risk between the CAD and the basket of currencies that the ETF holdings are denominated in — Pound, Yen, Euro etc., not the CAD-USD exchange rate) , the loss in value of the Canadian dollar helped cushion the steep drop in stock values. As of October 1, 2011, the Sleepy Portfolio is valued at $125,766, a loss of 7.7 percent in the third quarter of 2011. Bonds held up quite nicely: both XSB (short-term Canadian bonds) and XRB (real-return bonds) posted modest gains. Canadian REITs were a surprise. XRE, the REIT ETF, was down slightly.
Here’s how the portfolio looked as of October 1, 2011:
![[Sleepy Portfolio Snapshot as of October 1, 2011]](https://CCapitalist.b-cdn.net/ccapitalist/wp-content/uploads/2011/10/Sleepy-Portfolio-3Q-2011.png)
The only activities in the portfolio during the quarter were distributions from the component ETFs, which totalled $606. If EAFE markets continue to slide down even more, we’ll be selling a bit of cash, bonds and REITs and buying VEA.
