Stock Market Smarts: Conservative Portfolio Back on Track

Some investors want to reduce the level of risk in their portfolios as they age, even if that means sacrificing some return.

In September 2011, I set up a model portfolio for this purpose. The objective was to preserve capital while earning a target return of two percentage points more than the yield on a five-year GIC from the major banks. The current RBC rate is 1.6 per cent so at present we are aiming for 3.6 per cent per year.

Here is a look at the securities we hold with some comments on how they performed since my last update in mid-September. Prices are as of the mid-day on April 19 except for the PIMCO fund, which is at the close of trading on April 18.

iShares 1-5 Year Laddered Corporate Bond Fund (TSX: CBO). This short-term corporate bond ETF was chosen because of its low-risk profile and regular monthly cash flow. Because of the low-risk nature of the fund, we don’t expect much of a return. However, we should be doing better than the 0.03 per cent cumulative return to date so a change is needed here.

iShares Canadian Universe Bond Index ETF (TSX: XBB). We added this ETF to the portfolio last September when it was trading at $31.37. As of mid-day on April 19 they were up to $13.72 plus we had received distributions of $0.4491 per unit for a gain of 2.6 per cent during the period.

PIMCO Monthly Income Fund (PMO005). We added this global fixed-income mutual fund in October 2013. It offers monthly cash flow and places a strong emphasis on capital preservation. Since the last review, the unit value has lost $0.40 but that was more than made up for by distributions totalling about $0.54 per unit. We have a total return of 12.1 per cent so far on this one.

BCE Inc. (TSX, NYSE: BCE). BCE continues to be a strong performer for us. The stock has gained $5.64 since the last review and the company increased its quarterly dividend by 5 per cent to $0.6825, effective with the March payment.

Enbridge (TSX, NYSE: ENB). After being battered last summer, Enbridge shares staged a modest recovery in the latest period, adding $1.28. The big news for income-oriented investors was a dividend increase of about 14 per cent to $0.5299 per quarter.

Following is a summary of where we stood at mid-day on April 19. The initial book value was $10,000. At the time of my last review the value of the portfolio, including dividends/distributions, was $13,193.73. Brokerage commissions are not factored in and the Canadian and U.S. dollars are treated as being at par (which, obviously, they are not but we do this to remove exchange rates from the performance data).

We will use $793 of that to buy an additional 25 units of XBB. This will bring our total position to 60.

The rest will be invested in the iShares Canadian Short Term Bond Index ETF (TSX: XSB). The units were priced at $28.41 at the time of writing so we will buy 80 of them at a cost of $2,272.80. The balance of $68.44 will be added to our general cash reserve.

We will also make a few other small changes.

PMO005 – We will buy 10 units for $139.80. This will bring our total to 100 and reduce the retained income to $15.28.

BCE – We will buy one share at $59.48, which will bring our total to 30 and reduce retained income to $95.71.

BIP.UN – We’ll add one share at $52.73 to bring our position to 35. We will be left with cash of $69.86.

Cash – We will move our cash position of $549.61 to an on-line savings account with EQ Bank that currently pays 2.25 per cent.

Here is the revised portfolio. I will revisit it in September on its fifth anniversary.