On September 17, the U.S. government placed new tariffs on China, further escalating trade tensions between the two countries.
Fortunately, even bigger trade news came this month (at least for Canadians). Late on September 30, Canada and the U.S. agreed to a last-minute trade deal for Canada to join a new NAFTA, to be called USMCA – United States Mexico Canada Agreement. This follows last month’s deal between the U.S. and Mexico.
On September 26, the U.S. Federal Reserve raised the policy interest rate to a range of 2.00%-2.25%. One more hike is expected in 2018. Short term yields in the U.S. continue a notable climb:
|Name||Ticker||September 2018 Return||2018 YTD Return|
|Canadian Listed ETFs|
|BMO S&P/TSX Capped Composite Index ETF||ZCN||-0.89%||1.36%|
|BMO MSCI EAFE Index ETF||ZEA||-0.08%||1.52%|
|BMO MSCI Emerging Markets Index ETF||ZEM||-1.85%||-5.51%|
|iShares Core Canadian Universe Bond Index ETF||XBB||-0.99%||-0.44%|
|iShares Canadian Corporate Bond Index ETF||XCB||-0.84%||-0.12%|
|Vanguard Canadian Short-Term Corporate Bond Index ETF||VSC||-0.17%||0.66%|
|iShares S&P/TSX Canadian Preferred Share Index ETF||CPD||-0.43%||1.90%|
|Vanguard FTSE Canadian Capped REIT Index ETF||VRE||-1.33%||7.73%|
|U.S. Listed ETFs|
|SPDR® S&P 500 ETF||SPY||0.56%||10.45%|
|Vanguard FTSE Developed Markets ETF||VEA||0.74%||-1.63%|
|Vanguard FTSE Emerging Markets ETF||VWO||-1.30%||-8.83%|
|iShares Core U.S. Aggregate Bond ETF||AGG||-0.66%||-1.64%|
|iShares iBoxx $ Investment Grade Corporate Bond ETF||LQD||-0.34%||-3.23%|
|Vanguard Short-Term Corporate Bond ETF||VCSH||-0.07%||0.15%|
|iShares iBoxx $ High Yield Corporate Bond ETF||HYG||0.51%||2.52%|
|iShares U.S. Preferred Stock ETF||PFF||-1.46%||1.10%|
|Fidelity® MSCI Real Estate ETF||FREL||-2.59%||2.03%|
Source: Morningstar.ca NAV returns for ETFs; Bank of Canada Daily Exchange Rates for currency
Gains were hard to come by in September, with only three of the above ETFs generating positive returns.
Monthly Portfolio Activity
|September Balance||Beginning Value||Ending Value||Change ($)||Change (%)|
|USD RRSP Total||$5,103.85||$5,098.74||($5.11)||-0.10%|
Income was earned from both PFF (pays monthly) and FREL (pays quarterly).
Current Portfolio Allocation and Balance
|Current Value (In CAD)||Current Allocation|
|USD RRSP Total||$6,600.32||51.53%|
|Grand Total (CAD at $1.2945 per USD as of 9/28/2018)||$11,600.32||94.63%|
Performance and Contribution
|Shares||Beginning Price||Ending Price||Income||Return ($)||Return (%)||Contribution|
Thanks to the timing of the purchase of VWO in the month, the position contributed positively to performance despite the ETF having a negative return for the period. The other two holdings declined and the net result is a small overall loss from the ETF holdings.
The CAD strengthened relative to the USD in September and currency translation caused the bulk of the monthly loss in the value of the CanETF Portfolio.
CanETF Portfolio Trade #3 took place on September 10 and 20 shares of Vanguard FTSE Emerging Markets ETF (VWO) were bought. The timing has turned out to be good thus far, but this is an asset class that is likely to have more surprises in store.
Adding some emerging market stocks to an allocation of mostly cash, some U.S. preferred shares and U.S. REITs was a key step in diversifying the Portfolio. But the classic building blocks of developed market stocks and bonds are still nowhere to be found. This is valuation driven and time will tell when a bargain will arise. Bonds have become more attractive throughout the year as interest rates have risen and some of the feared increase in rates is behind us. Meanwhile, developed market stocks are near all time highs and in a very long bull run. For now, there is no obvious next target for purchase, and no intention to sell down the current holdings. Action will be taken when an opportunity arises.
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.