CanETF Portfolio January 2019 Update: Resounding Rebound

Market Highlights

After a brutal December, markets rebounded vigorously to start 2019. Both stocks and bonds had strong returns, and of the ETFs tracked below only Canadian preferreds were in the red (and barely so).

In part, this rally was supported by market expectations that the U.S. Federal Reserve would lighten up or outright pause interest rate increases and/or consider normalizing the balance sheet at a larger size.

In line with this dovish turn, the Fed kept rates steady as announced at the end of their meeting on January 30.

This followed the Bank of Canada doing the same earlier in the month on January 9, when they also lowered estimates for 2019 GDP growth.

NameTickerJanuary 2019 Return
Canadian Listed ETFs
BMO S&P/TSX Capped Composite Index ETFZCN8.69%
BMO MSCI EAFE Index ETFZEA2.53%
BMO MSCI Emerging Markets Index ETFZEM5.66%
iShares Core Canadian Universe Bond Index ETFXBB1.35%
iShares Canadian Corporate Bond Index ETFXCB1.68%
Vanguard Canadian Short-Term Corporate Bond Index ETFVSC0.50%
iShares S&P/TSX Canadian Preferred Share Index ETFCPD-0.54%
Vanguard FTSE Canadian Capped REIT Index ETFVRE7.77%
U.S. Listed ETFs
SPDR® S&P 500 ETFSPY7.99%
Vanguard FTSE Developed Markets ETFVEA7.34%
Vanguard FTSE Emerging Markets ETFVWO8.54%
iShares Core U.S. Aggregate Bond ETFAGG1.07%
iShares iBoxx $ Investment Grade Corporate Bond ETFLQD3.14%
Vanguard Short-Term Corporate Bond ETFVCSH1.09%
iShares iBoxx $ High Yield Corporate Bond ETFHYG4.71%
iShares U.S. Preferred Stock ETFPFF4.85%
Fidelity® MSCI Real Estate ETFFREL11.70%
USD/CAD-3.65%

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

Monthly Portfolio Activity

January 2019 BalanceBeginning ValueEnding ValueChange ($)Change (%)
CAD TFSA
Cash$3,714.65$3,724.75$10.10
CPD$1,253.00$1,247.00($6.00)
CAD TFSA Total$4,967.65$4,971.75$4.100.08%
USD RRSP
Cash$2,377.82$2,377.82$0.00
PFF$1,369.20$1,446.40$77.20
VWO$762.00$835.60$73.60
FREL$447.80$500.20$52.40
USD RRSP Total$4,956.82$5,160.02$203.204.10%
CAD Total$11,729.74$11,754.08$24.340.21%

iShares S&P/TSX Canadian Preferred Share Index ETF (CPD) paid out two distributions in January. Much like iShares U.S. Preferred Stock ETF (PFF) paid two in December, the year-end timing of these monthly payers is a bit off. They are expected to revert to a regular one a month schedule in February.

Current Portfolio Allocation and Balance

 Current Value (In CAD)Current Allocation
CAD TFSA
Cash$3,724.7531.69%
CPD$1,247.0010.61%
CAD TFSA Total$4,971.7542.30%
USD RRSP
Cash$3,125.4126.59%
PFF$1,901.1516.17%
VWO$1,098.319.34%
FREL$657.465.59%
USD RRSP Total$6,782.3357.70%
Grand Total (CAD at $1.3144 per USD as of 1/31/2019)$11,754.08100.00%

Performance and Contribution

 SharesBeginning PriceEnding PriceIncomeReturn ($)Return (%)Contribution
PFF40$34.23$36.16$0.000000$77.205.64%0.66%
CPD100$12.53$12.47$0.101$4.100.33%0.03%
VWO20$38.10$41.78$0.0000$73.609.66%0.63%
FREL20$22.39$25.01$0.000$52.4011.70%0.45%

The CanETF Portfolio received a strong contribution in January from the ETFs holdings. This was welcome given the negative currency impact of the Canadian dollar strengthening relative to the U.S. Dollar. CAD essentially gained back what it lost during December.

USDCAD 1212018-1312019
Source: Bank of Canada

Combining the two factors led to the Portfolio eeking out a small gain for January in CAD terms.

This relationship between USD exposure and the ETF (and general market) performance raises an interesting observation. In December, when markets were in sell-off mode, safe haven flows into USD boosted the CAD value of the Portfolio. In January, markets rallied and CAD gained. These forces can act in a diversifying manner as they have in the last two months.

Trade Summary

No trades were placed in January.

Looking Ahead

It is now clear that opportunities were missed in the market panic of late 2018. What was purchased in the latter half of the year could have been had for cheaper, and what was almost purchased is now more expensive. Still, market timing is not the aim of this strategy and the search for attractive opportunities continues.

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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