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.
|Name||Ticker||January 2019 Return|
|Canadian Listed ETFs|
|BMO S&P/TSX Capped Composite Index ETF||ZCN||8.69%|
|BMO MSCI EAFE Index ETF||ZEA||2.53%|
|BMO MSCI Emerging Markets Index ETF||ZEM||5.66%|
|iShares Core Canadian Universe Bond Index ETF||XBB||1.35%|
|iShares Canadian Corporate Bond Index ETF||XCB||1.68%|
|Vanguard Canadian Short-Term Corporate Bond Index ETF||VSC||0.50%|
|iShares S&P/TSX Canadian Preferred Share Index ETF||CPD||-0.54%|
|Vanguard FTSE Canadian Capped REIT Index ETF||VRE||7.77%|
|U.S. Listed ETFs|
|SPDR® S&P 500 ETF||SPY||7.99%|
|Vanguard FTSE Developed Markets ETF||VEA||7.34%|
|Vanguard FTSE Emerging Markets ETF||VWO||8.54%|
|iShares Core U.S. Aggregate Bond ETF||AGG||1.07%|
|iShares iBoxx $ Investment Grade Corporate Bond ETF||LQD||3.14%|
|Vanguard Short-Term Corporate Bond ETF||VCSH||1.09%|
|iShares iBoxx $ High Yield Corporate Bond ETF||HYG||4.71%|
|iShares U.S. Preferred Stock ETF||PFF||4.85%|
|Fidelity® MSCI Real Estate ETF||FREL||11.70%|
Source: Morningstar.ca NAV returns for ETFs; Bank of Canada Daily Exchange Rates for currency
Monthly Portfolio Activity
|January 2019 Balance||Beginning Value||Ending Value||Change ($)||Change (%)|
|CAD TFSA Total||$4,967.65||$4,971.75||$4.10||0.08%|
|USD RRSP Total||$4,956.82||$5,160.02||$203.20||4.10%|
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 Total||$4,971.75||42.30%|
|USD RRSP Total||$6,782.33||57.70%|
|Grand Total (CAD at $1.3144 per USD as of 1/31/2019)||$11,754.08||100.00%|
Performance and Contribution
|Shares||Beginning Price||Ending Price||Income||Return ($)||Return (%)||Contribution|
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.
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.
No trades were placed in January.
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.