CanETF Portfolio April 2018 Update: Stocks Up, Bonds and Preferreds Down

Market Highlights

April was another silent month for activity within the CanETF Portfolio, but as always the markets kept things interesting.

NameTickerApril 2018 Return2018 YTD Return
Canadian Listed ETFs
BMO S&P/TSX Capped Composite Index ETFZCN1.81%-2.76%
BMO MSCI EAFE Index ETFZEA1.17%2.84%
BMO MSCI Emerging Markets Index ETFZEM-2.13%2.50%
iShares Core Canadian Universe Bond Index ETFXBB-0.89%-0.82%
iShares Canadian Corporate Bond Index ETFXCB-0.62%-0.45%
Vanguard Canadian Short-Term Corporate Bond Index ETFVSC0.03%0.18%
iShares S&P/TSX Canadian Preferred Share Index ETFCPD-0.50%-0.76%
Vanguard FTSE Canadian Capped REIT Index ETFVRE-0.77%0.20%
U.S. Listed ETFs
SPDR® S&P 500 ETFSPY0.38%-0.41%
Vanguard FTSE Developed Markets ETFVEA1.56%0.41%
Vanguard FTSE Emerging Markets ETFVWO-2.07%-0.03%
iShares Core U.S. Aggregate Bond ETFAGG-0.74%-2.22%
iShares iBoxx $ Investment Grade Corporate Bond ETFLQD-1.23%-4.16%
Vanguard Short-Term Corporate Bond ETFVCSH-0.11%-0.90%
iShares iBoxx $ High Yield Corporate Bond ETFHYG0.74%-0.39%
iShares U.S. Preferred Stock ETFPFF-0.68%-1.32%
Fidelity® MSCI Real Estate ETFFREL0.32%-5.75%
USD/CAD-0.45%2.32%

Source: Morningstar.ca NAV returns for ETFs; Bank of Canada Daily Exchange Rates for currency

The most notable market event in the month occurred on the 24th, when the U.S. 10-year Treasury interest rate rose above 3% for the first time in four years.

U.S. 10 Year Treasury Yield 04272018

On the same day, the U.S. 2-year Treasury note yield hit 2.5% for the first time since 2008. Thomas Franck from CNBC put together an informative write-up.

Canadian market interest rates were broadly higher as well.

BoC 5-10 Year Average Bond Yield 04302018
Government of Canada Marketable Bonds – Average Yield – 5 to 10 Year
Source: Bank of Canada

Monthly Portfolio Activity

April BalanceBeginning ValueEnding ValueChange ($)Change (%)
CAD TFSA
Cash$5,000.00$5,000.00$0.000.00%
USD RRSP
Cash$3,819.66$3,822.98$3.32
PFF$751.20$742.60($8.60)
FREL$457.60$460.40$2.80
USD RRSP Total$5,028.46$5,025.98($2.48)-0.05%
CAD Total$11,483.70$11,451.35($32.35)-0.28%

Income was earned from PFF (pays monthly).

Current Portfolio Allocation and Balance

 Current Value (In CAD)Current Allocation
CAD TFSA
Cash$5,000.0043.66%
USD RRSP
Cash$4,907.1842.85%
PFF$953.208.32%
FREL$590.975.16%
USD RRSP Total$6,451.3556.34%
Grand Total (CAD at $1.2836 per USD as of 4/30/2018)$11,451.35100.00%

Performance and Contribution

 SharesBeginning PriceEnding PriceIncomeReturn ($)Return (%)Contribution
PFF20$37.56$37.13$0.165853($5.28)-0.70%-0.05%
FREL20$22.88$23.02$0.00$2.800.61%0.02%

The CAD strengthened relative to the USD, although it remains weaker year to date. The negative return from the U.S. denominated ETF holdings led to a loss in the Portfolio in base currency terms, and the negative currency translation further added to this loss in Canadian dollar terms.

Trade Summary

No trades were placed in April.

Looking Ahead

The need to build out the Portfolio is balanced by a lack of compelling valuations across asset classes. Because the Portfolio has such a high cash balance, the idea of initiating small positions in potentially expensive assets grows in appeal with the passage of time. If the asset class was indeed overvalued and corrects to fair value, there will still be plenty of opportunity to average down. If it gets more overvalued, the Portfolio will not miss out entirely on the gain.

However, the absolute return nature of the strategy and preference for avoiding losses over participating in gains calls for more patience than appropriate in most cases. Still, the Portfolio’s 86.52% cash balance (CAD and USD combined in CAD terms) suggests there are fewer appealing ETFs than is likely the case. The Portfolio will seek to invest the cash balance in ETFs where the likelihood and magnitude of positive returns fairly outweighs the risk of loss.

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.

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