CanETF Portfolio November Update: Dovish Signal Helps Risk Assets

Market Highlights

November provided some welcome relief after the losses endured in October. Notable events include:

U.S. midterm election results came in as expected on November 6, with the Democrats gaining control of the House and the Republicans keeping the Senate.

Oil prices fell into a bear market and then some, sparking renewed production cut talks.

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Prices are roughly double those of the early 2016 lows, but this most recent move still represents a sharp decline.

On November 28, just days after the S&P 500 entered its second correction of the year, U.S. Federal Reserve Chairman Jerome Powell offered markets a dovish turn, sparking a powerful rally.

NameTickerNovember 2018 Return2018 YTD Return
Canadian Listed ETFs
BMO S&P/TSX Capped Composite Index ETFZCN1.38%-3.67%
BMO MSCI EAFE Index ETFZEA1.18%-3.59%
BMO MSCI Emerging Markets Index ETFZEM5.37%-7.20%
iShares Core Canadian Universe Bond Index ETFXBB1.03%-0.06%
iShares Canadian Corporate Bond Index ETFXCB0.39%-0.41%
Vanguard Canadian Short-Term Corporate Bond Index ETFVSC0.25%0.49%
iShares S&P/TSX Canadian Preferred Share Index ETFCPD-5.98%-6.91%
Vanguard FTSE Canadian Capped REIT Index ETFVRE1.66%5.80%
U.S. Listed ETFs
SPDR® S&P 500 ETFSPY2.03%4.98%
Vanguard FTSE Developed Markets ETFVEA0.40%-9.66%
Vanguard FTSE Emerging Markets ETFVWO4.48%-11.98%
iShares Core U.S. Aggregate Bond ETFAGG0.59%-1.83%
iShares iBoxx $ Investment Grade Corporate Bond ETFLQD-0.32%-5.36%
Vanguard Short-Term Corporate Bond ETFVCSH0.01%0.12%
iShares iBoxx $ High Yield Corporate Bond ETFHYG-0.51%0.29%
iShares U.S. Preferred Stock ETFPFF-2.20%-3.30%
Fidelity® MSCI Real Estate ETFFREL4.73%3.74%
USD/CAD1.21%6.03%

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

Monthly Portfolio Activity

November BalanceBeginning ValueEnding ValueChange ($)Change (%)
CAD TFSA
Cash$5,000.00$3,719.55($1,280.45)
CPD$1,284.00$1,284.00
CAD TFSA Total$5,000.00$5,003.55$3.550.07%
USD RRSP
Cash$2,341.41$2,352.57$11.16
PFF$1,445.60$1,407.20($38.40)
VWO$757.20$793.80$36.60
FREL$468.20$490.20$22.00
USD RRSP Total$5,012.41$5,043.77$31.360.63%
CAD Total$11,587.31$11,712.27$124.961.08%

Income was earned from PFF (pays monthly) and CPD (pays monthly).

Current Portfolio Allocation and Balance

 Current Value (In CAD)Current Allocation
CAD TFSA
Cash$3,719.5531.76%
CPD$1,284.0010.96%
CAD TFSA Total$5,003.5542.72%
USD RRSP
Cash$3,129.1526.72%
PFF$1,871.7215.98%
VWO$1,055.839.01%
FREL$652.025.57%
USD RRSP Total$6,708.7257.28%
Grand Total (CAD at $1.3301 per USD as of 11/30/2018)$11,712.27100.00%

Performance and Contribution

 SharesBeginning PriceEnding PriceIncomeReturn ($)Return (%)Contribution
PFF40$36.14$35.18$0.156483($32.14)-2.22%-0.27%
VWO20$37.86$39.69$0.0000$36.604.83%0.31%
FREL20$23.41$24.51$0.000$22.004.70%0.19%
CPD100$12.85$12.84$0.049$3.900.30%0.03%

Portfolio holding iShares U.S. Preferred Stock ETF (PFF) had a poor month, and the timing of the add-on purchase of 20 shares on October 3 proved early. Fortunately, Fidelity MSCI Real Estate ETF (FREL) and Vanguard FTSE Emerging Markets ETF (VWO) delivered strong returns in November, more than offsetting the decline in PFF.

The Canadian dollar weakened again relative to the U.S. dollar, not surprising given the drop in oil prices. As a result, the Portfolio received a boost from translating the USD-denominated ETF holdings and cash held in the RRSP portion of the Portfolio at a higher exchange rate.

Trade Summary

After calling out Canadian preferred shares last month as a potential asset class to add, on November 26 the opportunity arose to purchase 100 shares of iShares S&P/TSX Canadian Preferred Share Index ETF (CPD) at $12.85.

Looking Ahead

It was a relief to put some of the untouched CAD TFSA cash balance to work into CPD. As mentioned in the October update, international stocks are close to attractive valuations and could be the next purchase. Otherwise, it feels appropriate to wait and see how the near future unfolds and to patiently await the next opportunity.

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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