Stocks and REITs in both Canada and the U.S. led generally positive markets in May.
|Name||Ticker||May 2018 Return||2018 YTD Return|
|Canadian Listed ETFs|
|BMO S&P/TSX Capped Composite Index ETF||ZCN||3.10%||0.25%|
|BMO MSCI EAFE Index ETF||ZEA||-0.94%||1.87%|
|BMO MSCI Emerging Markets Index ETF||ZEM||-2.35%||0.10%|
|iShares Core Canadian Universe Bond Index ETF||XBB||0.81%||-0.01%|
|iShares Canadian Corporate Bond Index ETF||XCB||0.54%||0.09%|
|Vanguard Canadian Short-Term Corporate Bond Index ETF||VSC||0.06%||0.25%|
|iShares S&P/TSX Canadian Preferred Share Index ETF||CPD||0.99%||0.22%|
|Vanguard FTSE Canadian Capped REIT Index ETF||VRE||2.56%||2.76%|
|U.S. Listed ETFs|
|SPDR® S&P 500 ETF||SPY||2.40%||1.98%|
|Vanguard FTSE Developed Markets ETF||VEA||-1.61%||-1.20%|
|Vanguard FTSE Emerging Markets ETF||VWO||-2.84%||-2.85%|
|iShares Core U.S. Aggregate Bond ETF||AGG||0.71%||-1.53%|
|iShares iBoxx $ Investment Grade Corporate Bond ETF||LQD||0.57%||-3.61%|
|Vanguard Short-Term Corporate Bond ETF||VCSH||0.42%||-0.48%|
|iShares iBoxx $ High Yield Corporate Bond ETF||HYG||0.16%||-0.24%|
|iShares U.S. Preferred Stock ETF||PFF||0.87%||-0.46%|
|Fidelity® MSCI Real Estate ETF||FREL||3.43%||-2.52%|
Source: Morningstar.ca NAV returns for ETFs; Bank of Canada Daily Exchange Rates for currency
The loss turned in by emerging markets was a notable outlier.
After an impressive run since the early 2016 lows, emerging markets look to be taking a breather.
Two market milestones occurred in May:
- The S&P 500 dividend yield was surpassed by the 3-month Treasury bill yield for the first time since 2008.
- Oil (Brent crude) traded above $80 for the first time since late November of 2014.
Monthly Portfolio Activity
|May Balance||Beginning Value||Ending Value||Change ($)||Change (%)|
|USD RRSP Total||$5,025.98||$5,047.79||$21.81||0.43%|
Income was earned from PFF (pays monthly).
Current Portfolio Allocation and Balance
|Current Value (In CAD)||Current Allocation|
|USD RRSP Total||$6,535.88||56.66%|
|Grand Total (CAD at $1.2948 per USD as of 5/31/2018)||$11,535.88||100.00%|
Performance and Contribution
|Shares||Beginning Price||Ending Price||Income||Return ($)||Return (%)||Contribution|
The CAD weakened relative to the USD in May, resulting in the USD RRSP balance being translated at a more favourable rate. Although both ETF holdings had a positive return, this positive currency translation provided the bulk of the gain in Canadian dollar terms for the Portfolio this month.
No trades were placed in April.
Five months have passed since inception of the CanETF Portfolio. Looking at the year to date column in the returns table above, one can’t help but wonder if the cautious approach employed thus far was wise. Over 86% of the Portfolio remains in cash (CAD and USD combined in CAD terms). Some of this balance could have been invested in equities on dips even if valuations are elevated. Much of it could have found a home, even if temporary, in some short term bonds.
In hindsight, it is easy to call out caution as unwarranted. Given the absolute return, loss avoiding nature of this strategy, it is appropriate to err on the side of prudent deliberation. In any case, the cash balance is so high that it will be difficult to achieve a positive return after inflation even if the ETFs currently held have an excellent year. This alone is telling and speaks to the need to continue finding attractive assets to buy. The Portfolio will look for investment opportunities with this in mind.
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.