TFSA Portfolio Averages Almost 10%

Diversified group of exchange-traded funds provides international exposure at a low cost


There are many ways to use Tax-Free Savings Accounts (TFSAs), ranging from simple savings plans to aggressive stock-trading vehicles.

Ideally, I believe these plans should be used to maximize the benefit promised in the name – tax savings. So in March 2012 I set up a portfolio for readers of my Internet Wealth Builder newsletter whose primary goal is to do exactly that. I used exchange-traded funds (ETFs) for this purpose with the aim of achieving appropriate global diversification at minimal cost.

All the ETFs are equity-based; there is no fixed-income component in this portfolio. This makes it higher risk and therefore only suitable for investors who can handle volatility and have a long time horizon. This is definitely not a model to use if you are saving for retirement, a child’s future education, or a major purchase to be made within five years.

The original target was an average annual return of between 10% and 12%. The first year turned out to be a disappointment with only a 3.1% gain as defensive securities were the big winners in a nervous investment climate. The second year (to April 2, 2014) was better with a nice advance of 19.2% and at that point the two-year average annual compound rate of return was 10.83%, almost exactly at the mid-point of my target range.

We’re now more than seven months further down the road, so let’s see how we’re faring. Here’s a look at the ETFs in the portfolio with some comments on how they have fared since our last review on April 2. Results are as of the afternoon of Nov. 19.

iShares S&P/TSX Capped Composite Index Fund (TSX: XIC). This ETF tracks the performance of the S&P/TSX Composite Index. The shares are up by $0.96 since our last review plus we have received distributions of $0.30 a share, for a gain of 5.5% since our last review and a total return of 28.4% since the launch of the portfolio.

iShares S&P/TSX Small Cap Index Fund (TSX: XCS). It was a bad, bad summer for Canadian small cap stocks. The shares of this ETF dropped 8%, from $16.71 at the time of our last review to $15.34. The two quarterly distributions totaling $0.22 came nowhere near offsetting the loss. As a result, we are barely at break-even on this investment since inception.

iShares Russell 2000 Index Fund (CAD-Hedged) (TSX: XSU). It wasn’t a good summer for U.S. small-cap stocks either, although they didn’t fare as badly as their Canadian counterparts. This ETF slipped $0.69 to $24.95. However, thanks to its past strength we are still ahead by 43.4%.

iShares S&P 500 Index Fund (CAD-Hedged) (TSX: XSP). Small-cap stocks may have floundered but their large-cap brothers did very well, thank you. The S&P 500 index, which this fund tracks, set one record after another over the summer and the result was a gain of $2.07 a share, or 9.5%, in the value of this fund. It has become our portfolio’s second-best producer with a total return to date of 52.6%.

BMO Nasdaq 100 Equity Hedged to CAD Index ETF (TSX: ZQQ). This fund provides exposure to the top 100 stocks on the Nasdaq exchange. It hasn’t set any new records this year – it hit its all-time high in 2000 just before the tech crash. But it has performed well nonetheless as the technology sector continues to expand. The fund gained $4.69 per share (+16.5%) over the summer, bringing our total return to 59.3%. This ETF now ranks as the number one performer in the portfolio.

iShares MSCI EAFE Index ETF (CAD-Hedged) (TSX: XIN). This fund invests in large-cap companies from developed countries in Europe, Asia, and Australasia, hedged back to Canadian dollars. It’s really a Canadian replica of EFA, which trades in New York and which should be your choice if you don’t want the hedging feature. XIN has been a respectable but not outstanding performer with a gain of 4.8% since our last review and a total return to date of 19.5%.

iShares MSCI Frontier 100 ETF (NYSE: FM). This ETF tracks major companies in Third World countries from Nigeria to Vietnam. I added it to this portfolio in April at US$36.89. It has slipped back to US$35.24 since then however we received a distribution of $0.8264 per share in June that partially offset that drop. As a result, we are only down 2.2% on this one.

iShares MSCI Emerging Markets ETF (NYSE: EEM). We also added 25 shares of this emerging markets fund in April when it was trading at US$41.57. The shares did well for a few months, topping US$45 in June but then went into a long decline as investor concerns grew over the short-term prospects for emerging markets. The price is down US$0.35 since April, which was almost exactly offset by a June distribution of US$0.3406.

We received interest of $4.27 over the period on the money invested in a high interest savings account. This has been added to cash.

Click through for a look at how the portfolio stood on the afternoon of Nov.19. The Canadian and U.S. dollars are treated at par and commissions are not taken into account.

Gordon Pape’s Aggressive TFSA Portfolio

(as of Nov. 19, 2014)

Security Weight% TotalShares AveragePrice BookValue CurrentPrice MarketValue CashRetained Gain/Loss%
XIC 19.5 205 $19.58 $4,013.90 $23.76 $4,870.80 $285.05 +28.4
XCS 8.3 135 $16.32 $2,203.20 $15.34 $2,070.90 $137.04 + 0.2
XSU 17.0 170 $17.81 $3,027.70 $24.95 $4,241.50 $101.68 +43.4
XSP 19.1 200 $15.97 $3,212.80 $23.77 $4,754.00 $148.49 +52.6
ZQQ 18.6 140 $21.00 $2,940.00 $33.03 $4,624.20 $58.79 +59.3
XIN 9.1 100 $19.68 $1,968.00 $22.71 $2,271.00 $79.81 +19.5
FM 4.2 30 $36.89 $1,106.70 $35.24 $1,057.20 $24.79 – 2.2
EEM 4.1 25 $41.57 $1,039.25 $41.22 $1,030.50 $8.52 0
Cash 0.1 0 $4.27
Total 100 $19,511.55 $24,924.37 $844.17 +32.1
Inception $20,002.30 +28.8


Comments: It was a so-so summer for this portfolio, with a total return of 4.9% for the period. Since the launch, we are ahead 28.8% based on the original book value of $20,002.30. That reduces our average annual compound rate of return to 9.95%, a shade under our target range.

Changes: We’ll keep the basic portfolio intact for now. However, we will reinvest some of the retained distributions as follows.

XIC – We will buy 10 more shares for a cost of $237.60, bringing our total to 215.

XSP – We will buy five shares for $118.85 to bring our total to 205.

These small purchases are for modelling purposes only. If you want to reinvest your distributions, the most cost-efficient way is by using a dividend reinvestment plan.

Here is the updated portfolio.

Gordon Pape’s Aggressive TFSA Portfolio

(revised Nov. 19, 2014)

Security Weight% TotalShares AveragePrice BookValue CurrentPrice MarketValue CashRetained
XIC 20.1 215 $19.77 $4,251.50 $23.76 $5,108.40 $47.45
XCS 8.2 135 $16.32 $2,203.20 $15.34 $2,070.90 $137.04
XSU 16.8 170 $17.81 $3,027.70 $24.95 $4,241.50 $101.68
XSP 19.3 205 $16.25 $3,331.65 $23.77 $4,872.85 $29.64
ZQQ 18.3 140 $21.00 $2,940.00 $33.03 $4,624.20 $58.79
XIN 9.0 100 $19.68 $1,968.00 $22.71 $2,271.00 $79.81
FM 4.2 30 $36.89 $1,106.70 $35.24 $1,057.20 $24.79
EEM 4.1 25 $41.57 $1,039.25 $41.22 $1,030.50 $8.52
Cash 0.0 $4.27 $4.27
Total 100 $19,872.27 $25,280.82 $487.72
Inception $20,002.30


We will invest the cash holdings of $491.99 in a high interest account paying 1.3%. I will revisit this portfolio in March at the time of its third anniversary.

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