Two events stand out amid the continued trade disputes and quarterly earnings releases capturing much of market participants’ attention:
On July 1, the Mexican presidential election was won by Andres Manuel Lopez Obrador, known as AMLO.
The Bank of Canada raised the overnight rate target to 1.50% on July 11.
|Name||Ticker||July 2018 Return||2018 YTD Return|
|Canadian Listed ETFs|
|BMO S&P/TSX Capped Composite Index ETF||ZCN||1.15%||3.11%|
|BMO MSCI EAFE Index ETF||ZEA||1.53%||3.61%|
|BMO MSCI Emerging Markets Index ETF||ZEM||1.59%||-1.36%|
|iShares Core Canadian Universe Bond Index ETF||XBB||-0.78%||-0.22%|
|iShares Canadian Corporate Bond Index ETF||XCB||-0.57%||-0.09%|
|Vanguard Canadian Short-Term Corporate Bond Index ETF||VSC||-0.10%||0.41%|
|iShares S&P/TSX Canadian Preferred Share Index ETF||CPD||1.09%||1.56%|
|Vanguard FTSE Canadian Capped REIT Index ETF||VRE||1.64%||6.86%|
|U.S. Listed ETFs|
|SPDR® S&P 500 ETF||SPY||3.70%||6.39%|
|Vanguard FTSE Developed Markets ETF||VEA||2.28%||-0.49%|
|Vanguard FTSE Emerging Markets ETF||VWO||3.17%||-4.27%|
|iShares Core U.S. Aggregate Bond ETF||AGG||0.03%||-1.63%|
|iShares iBoxx $ Investment Grade Corporate Bond ETF||LQD||1.16%||-3.19%|
|Vanguard Short-Term Corporate Bond ETF||VCSH||0.25%||-0.28%|
|iShares iBoxx $ High Yield Corporate Bond ETF||HYG||1.15%||1.29%|
|iShares U.S. Preferred Stock ETF||PFF||0.43%||1.49%|
|Fidelity® MSCI Real Estate ETF||FREL||0.69%||2.18%|
Source: Morningstar.ca NAV returns for ETFs; Bank of Canada Daily Exchange Rates for currency
Emerging markets equities, an area discussed last month as moving closer to an attractive valuation, delivered a solid return in July and made up some of the year to date loss. The bounce isn’t surprising given five straight months of negative returns, and the asset class remains intriguing due to the sizable valuation discount to developed market equities.
Canadian bonds delivered negative returns due to rising interest rates. The following chart shows rates are still shy of the year’s highs, but made a notable gain in July.
U.S. interest rates were higher as well, but still managed positive returns as evidenced by the representative ETFs. Equity markets were strong overall and preferred shares delivered gains as well.
Monthly Portfolio Activity
|July Balance||Beginning Value||Ending Value||Change ($)||Change (%)|
|USD RRSP Total||$5,052.84||$5,080.92||$28.08||0.56%|
Income was earned from PFF (pays monthly).
Current Portfolio Allocation and Balance
|Current Value (In CAD)||Current Allocation|
|USD RRSP Total||$6,613.83||56.95%|
|Grand Total (CAD at $1.3017 per USD as of 7/31/2018)||$11,613.83||100.00%|
Performance and Contribution
|Shares||Beginning Price||Ending Price||Income||Return ($)||Return (%)||Contribution|
FREL and PFF both sport modest gains for July, although PFF relied on the dividend distribution to generate a positive total return.
The CAD strengthened relative to the USD in July, after two months of weakness. This was the key factor for the negative return in CAD for the CanETF Portfolio, more than offsetting the positive returns from the two U.S. listed ETFs.
No trades were placed in July.
Comments written one month ago in this space remain valid and the plan has not changed. At this stage in the cycle, buying small increments on dips that make valuations more attractive is the only sensible approach for the strategy. Some asset classes are a relatively small drop away from a desirable price, and their ETFs will be purchased should such an opportunity arise. A decline in price is not the only way an asset could become attractive. Alternatively, some decisively positive development could occur that raises the intrinsic value of the asset and is simultaneously ignored or underappreciated by the market. This latter scenario is less likely and more difficult to navigate, but warrants a watchful eye.
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.