CanETF Portfolio May 2018 Update: Missing Out?

Market Highlights

Stocks and REITs in both Canada and the U.S. led generally positive markets in May.

NameTickerMay 2018 Return2018 YTD Return
Canadian Listed ETFs
BMO S&P/TSX Capped Composite Index ETFZCN3.10%0.25%
BMO MSCI EAFE Index ETFZEA-0.94%1.87%
BMO MSCI Emerging Markets Index ETFZEM-2.35%0.10%
iShares Core Canadian Universe Bond Index ETFXBB0.81%-0.01%
iShares Canadian Corporate Bond Index ETFXCB0.54%0.09%
Vanguard Canadian Short-Term Corporate Bond Index ETFVSC0.06%0.25%
iShares S&P/TSX Canadian Preferred Share Index ETFCPD0.99%0.22%
Vanguard FTSE Canadian Capped REIT Index ETFVRE2.56%2.76%
U.S. Listed ETFs
SPDR® S&P 500 ETFSPY2.40%1.98%
Vanguard FTSE Developed Markets ETFVEA-1.61%-1.20%
Vanguard FTSE Emerging Markets ETFVWO-2.84%-2.85%
iShares Core U.S. Aggregate Bond ETFAGG0.71%-1.53%
iShares iBoxx $ Investment Grade Corporate Bond ETFLQD0.57%-3.61%
Vanguard Short-Term Corporate Bond ETFVCSH0.42%-0.48%
iShares iBoxx $ High Yield Corporate Bond ETFHYG0.16%-0.24%
iShares U.S. Preferred Stock ETFPFF0.87%-0.46%
Fidelity® MSCI Real Estate ETFFREL3.43%-2.52%
USD/CAD0.87%3.21%

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.

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After an impressive run since the early 2016 lows, emerging markets look to be taking a breather.

Two market milestones occurred in May:

  1. The S&P 500 dividend yield was surpassed by the 3-month Treasury bill yield for the first time since 2008.
  2. Oil (Brent crude) traded above $80 for the first time since late November of 2014.

Monthly Portfolio Activity

May BalanceBeginning ValueEnding ValueChange ($)Change (%)
CAD TFSA
Cash$5,000.00$5,000.00$0.000.00%
USD RRSP
Cash$3,822.98$3,826.59$3.61
PFF$742.60$745.00$2.40
FREL$460.40$476.20$15.80
USD RRSP Total$5,025.98$5,047.79$21.810.43%
CAD Total$11,451.35$11,535.88$84.530.74%

Income was earned from PFF (pays monthly).

Current Portfolio Allocation and Balance

 Current Value (In CAD)Current Allocation
CAD TFSA
Cash$5,000.0043.34%
USD RRSP
Cash$4,954.6742.95%
PFF$964.638.36%
FREL$616.585.34%
USD RRSP Total$6,535.8856.66%
Grand Total (CAD at $1.2948 per USD as of 5/31/2018)$11,535.88100.00%

Performance and Contribution

 SharesBeginning PriceEnding PriceIncomeReturn ($)Return (%)Contribution
PFF20$37.13$37.25$0.180445$6.010.81%0.05%
FREL20$23.02$23.81$0.00$15.803.43%0.14%

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.

Trade Summary

No trades were placed in April.

Looking Ahead

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.

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