March was a quiet month for trade activity in the CanETF Portfolio, but plenty happened in the markets.
|Name||Ticker||March 2018 Return||2018 YTD Return|
|Canadian Listed ETFs|
|BMO S&P/TSX Capped Composite Index ETF||ZCN||-0.15%||-4.49%|
|BMO MSCI EAFE Index ETF||ZEA||-0.38%||1.65%|
|BMO MSCI Emerging Markets Index ETF||ZEM||-0.09%||4.73%|
|iShares Core Canadian Universe Bond Index ETF||XBB||0.77%||0.08%|
|iShares Canadian Corporate Bond Index ETF||XCB||0.50%||0.17%|
|Vanguard Canadian Short-Term Corporate Bond Index ETF||VSC||0.05%||0.16%|
|iShares S&P/TSX Canadian Preferred Share Index ETF||CPD||-0.76%||-0.26%|
|Vanguard FTSE Canadian Capped REIT Index ETF||VRE||2.66%||0.97%|
|U.S. Listed ETFs|
|SPDR® S&P 500 ETF||SPY||-2.55%||-0.78%|
|Vanguard FTSE Developed Markets ETF||VEA||-0.47%||-1.13%|
|Vanguard FTSE Emerging Markets ETF||VWO||-1.19%||2.09%|
|iShares Core U.S. Aggregate Bond ETF||AGG||0.62%||-1.49%|
|iShares iBoxx $ Investment Grade Corporate Bond ETF||LQD||0.31%||-2.97%|
|Vanguard Short-Term Corporate Bond ETF||VCSH||0.03%||-0.79%|
|iShares iBoxx $ High Yield Corporate Bond ETF||HYG||-0.58%||-1.13%|
|iShares U.S. Preferred Stock ETF||PFF||0.49%||-0.64%|
|Fidelity® MSCI Real Estate ETF||FREL||3.77%||-6.06%|
Source: Morningstar.ca NAV returns for ETFs; Bank of Canada Daily Exchange Rates for currency
Worries over potential for a trade war shook Canadian markets early in the month by the announcement of steel and aluminum tariffs coming from the United States. Fortunately, fears were quickly extinguished when Canada turned out to be exempt.
Next came the tech selloff, which began at Facebook and soon extended to other high flying information technology stocks. In the end, the first quarter of 2018 was a challenging one for equities as losses mounted in most markets.
In monetary policy, the Federal Reserve raised the overnight rate to a range of 1.50%-1.75%. Meanwhile, assets continue to roll off of the balance sheet as part of the Fed’s policy normalization. The effect is now clearly visible in the following chart although still minute compared to the expansion of the balance sheet since the Great Financial Crisis.
|March Balance||Beginning Value||Ending Value||Change ($)||Change (%)|
|USD RRSP Total||$5,008.79||$5,028.46||$19.67||0.39%|
Income was earned this month from both PFF (pays monthly) and FREL (pays quarterly).
Current Portfolio Allocation and Balance
|Current Value (In CAD)||Current Allocation|
|USD RRSP Total||$6,483.70||56.46%|
|Grand Total (CAD at $1.2894 per USD as of 3/29/2018)||$11,483.70||100.00%|
Performance and Contribution
|Shares||Beginning Price||Ending Price||Income||Return ($)||Return (%)||Contribution|
It is encouraging that the best return from Market Highlights table came from portfolio holding FREL, while PFF also had a positive return. Meanwhile, avoiding equities once again helped avoid losses but the Portfolio missed out on positive returns from bonds.
The CAD continued to weaken relative to the USD. Put another way, the U.S. dollar denominated RRSP got a boost in Canadian dollar terms. Overall, the CanETF Portfolio recorded a positive return in March due to both positive performance from both holdings and the positive currency translation.
With the first quarter of 2018 now in the books, the CanETF Portfolio has its first quarterly return. In line with the stated goal of this benchmark free strategy, the Portfolio managed a positive return n the quarter.
No trades were placed in March.
Economic fundamentals were so rosy heading into 2018 that the thought of buying stocks with fresh funds was an uncomfortable idea. Over the longer term, the Portfolio can be expected to have a substantial allocation to equities, but this will be built up when the price is right. That said, an opportunity for an equity ETF purchase may be near if selling pressure continues.
Canadian preferred shares could very well be the next investment for the Portfolio. Because the majority of Canada’s market is made up of fixed-reset preferred shares, rising interest rates are a positive. The reverse is true in the U.S. where preferred shares are expected to sell off with rising interest rates. Together, owning Canadian and U.S. preferreds could be compelling from a diversification standpoint assuming that Canadian and U.S. interest rates move mostly together.
As well, the appeal of putting some of the large cash balance into short term bonds is tempting, especially now that yields are higher.
The attractiveness of short term bonds in this environment is that their sensitivity to rising interest rates is less than longer duration debt. Time will tell whether holding out for higher yields or initiating a position now is the right move.
The CanETF Portfolio is not meant to be taken as investment advice. Please conduct due diligence on any ETF investment you are considering, including but not limited to a review of the prospectus, underlying benchmark methodology (if applicable), portfolio characteristics, holdings, performance since inception, role in your existing portfolio, and outlook for future performance.