I’ve posted by September 2018 quarterly portfolio review. We’re behind on our total return target so far this year. Find our more here.
I’ve updated our household investment plan to reflect further progress on my thinking as we move closer to retirement.
I made pretty much all the trades I had discussed previously in my self-imposed quarterly trading window. One new addition to the portfolio (BIP) and two eliminations (EFV, EEM).
I have now written a brief piece on possible ways to mitigate the risk of sequence of returns.
Some of the approaches are not intuitive!
Sequence (of returns) risk is something I mentioned in my recent piece about my upcoming third quarter portfolio review. Sequence risk is a major factor in my planning as our household heads into retirement in the near future.
Looking at the current valuation of the S&P 500 vs. underlying gross national product is a bit sobering.
September brings my next quarterly portfolio review and my next, self-imposed, securities trading window (I only trade four times a year). I have been giving a fair bit of thought this summer to what’s next for our portfolio.
I’ve published my second quarter of 2018 portfolio review. In it I discuss my current take on managing our household portfolio, some of the trades I’ve recently made and my thoughts for the rest of the year.
See my review here.
I have a confession to make. I have broken my own asset allocation rules with my second quarter trades.
I bought more equities even though I was already a bit overweight in them.
Why did I do this?
My reasoning is as follows:
- I have a relatively low target equity weight to begin with (46% of our portfolio)
- I had a lot of cash on hand (way over 10% of our portfolio)
- I have more cash becoming available due to savings, bond maturities, dividends and interest in the next 12 months or less
- quite a bit of that cash was in our TFSAs and I wanted to get that money working at better than than bond returns since the returns are tax free
- bond yields are still not that attractive in spite of rising rates (~3.1% yield-to-maturity on a five-year investment grade corporate bond)
- there are a lot of relatively good deals in consumer staples, utilities and telecommunications right now – several companies are off their highs and are trading at reasonable multiples
- these three sectors are pretty defensive and could do OK in a recessionary environment
- I only bought high quality equities with relatively low risk and often decent dividends (with one or two exceptions)
- I did not add any new positions, just added to our existing holdings to increase their position size to something more in line with our average position size
- Next quarter is another opportunity to review our portfolio and decide if we should trim some of the big gainers, especially in technology, which are starting to become more dominant single positions in our holdings
What I bought (all in our TFSAs):
- Algonquin Power (AQN) – initially bought in my Canadian TFSA and journalled to my US TFSA to get the dividend that is paid in US dollars without conversion back to Canadian dollars
- Bell Canada Enterprises (BCE)
- Fortis (FTS)
- Loblaw (L) – has a relatively low dividend
- ONEX (ONEX) – this is an exception as it is a growth stock with a very small dividend in the multi-sector holdings industry
- North West Co (NWC)
- Telus (T)
I also bought some bonds:
- CALLOWAY-I 3.985% 30MY23
- FAIRFAX FINL 4.5% 22MR23
- CANADIAN WESTERN BANK Maturity Jun 16 2022 Coupon 2.737
So, after this investment “spree,” our weightings vs. targets are as follows:
|Total Cash/Near Cash||9.0%||9.4%||0.4%|
All in all, we’re still in a pretty conservative posture and continue to have flexibility with cash levels if needed.
More to come in early July when I publish my Q2 portfolio review.
I’ve completed my first quarter portfolio review.
Quite a difference from last year so far. Our household portfolio is flat so far this year. That’s a bit better than some of the major indexes, but not all.
I have a link in my review to some evidence that markets in the US might be soft until the mid-terms, and then could rebound a lot. So hopefully things will improve as the year progresses.
Find out more here.
I had some unexpected time available today to make my first quarter trades (normally made on the 15th of the month, so a day early).
I previously posted some considerations I had in mind for this cycle, and received some helpful feedback in reply to that earlier post (thank you FletcherLynd!). I also posted a related question to 5i Research. (All the feedback and discussion is contained in the replies to my earlier post if you wish to follow along.)
So, in the end I did the following to take advantage of utility stocks for sale at a relative market discount and to address some major holes in our bond ladder:
- Sold Valener (TSX:VNR) and bought, with the proceeds and a small top-up to a full position, Algonquin Power (TSX:AQN) – this trade is intended to improve the quality of my utility holdings (I still like VNR but I like the total return prospects of AQN better)*
- Topped up Fortis (TSX:FTS) and Brookfield Renewables (TSX:BEP.UN) to bring them to full positions
- Journalled the new BEP.UN shares from a Canadian dollar account to a US dollar acount (BEP) to capture dividends in US dollars without incurring currency conversion rates (this will occur on settlement March 16) – I bought in a Canadian dollar account because I didn’t have enough US cash in the account to make the purchase directly in the US account
- Bought about 25% of my required bond purchases for the year, going short duration to fill holes in my investment grade ladder and in anticipation of higher rates later in the year (I will buy slightly longer duration bonds in June, September and December):
- FORD CREDIT CANADA LTD SR UNSECURED Maturity Jun 22 2022 Coupon 2.766 for a yield-to-maturity of 2.9%
- FAIRFAX FINL 6.4% 25MY21 for a yield-to-maturity of 2.84%
The net result is I’ve gone a bit overweight equities (I was slightly over-allocated already before trading). I sit at 49.5% versus 46% target, in part because equities, in spite of the correction last month, are still surging in my portfolio (tracking 17.3% on an annualized basis so far this year).
I’ll keep an eye on equity allocations as the year progresses and may trim a bit in technology if current trends persist. New cash should also help offset this imbalance a bit.
I will be doing my quarterly review at the end of the month and will post it along with my previous reviews here.
*Full disclosure – I’ve been a bit erratic with Valener. I bought it in September 2017 (just six months ago) as a long-term holding. At the time I wanted to buy Algonquin Power but thought it was too expensive. I have traded VNR for AQN opportunistically because of the sector rotation taking place in utilities that has made AQN’s price a more attractive entry point.