Background
I started the Sleepy Portfolio in 2005 to benchmark my personal portfolio, which at that time was mostly invested in individual stocks. The portfolio started off with an initial outlay of $100,000 but no new money has been added since. This is not simply a model portfolio; it reflects investment returns that can be obtained in the real world by accounting for costs such as spreads, trading commissions, MERs, foreign exchange conversion charges etc. For example, dividend payments on US-listed ETFs are assumed to incur a foreign exchange fee of roughly 2 percent when they are deposited into the account. Note, however, that the portfolio is assumed to be held in a registered account, so it does not take taxes into account.
The portfolio has a target allocation of 5% cash, 15% short bonds, 5% real return bonds, 20% Canadian stocks, 22.5% US stocks, 22.5% Europe and Pacific, 5% Emerging markets and 5% REITs. The entire portfolio (apart from the cash portion) is invested in broad-market, exchange-traded funds (ETFs) trading in the Canadian and US stock exchanges. The cash portion is invested in a high-interest savings account that is available through many discount brokers and pays an interest of 1.25 percent.
2Q-2013 Update
The Sleepy Portfolio has gained 6.70 percent year-to-date since my previous update in the New Year.
Here’s how the portfolio looked as of July 9, 2012:
| Asset Type | Security | #s | Price | Current Value | % Portfolio | Target % | Delta |
|---|---|---|---|---|---|---|---|
| Cash | TDB8150 | 11501 | $1 | $11,501 | 7.47% | 5.00% | -2.47% |
| Bonds | TSX: XSB | 705 | $29 | $20,128 | 13.07% | 15.00% | 1.93% |
| TSX: XRB | 275 | $23 | $6,237 | 4.05% | 5.00% | 0.95% | |
| Canada Equity | TSX: XIC | 1445 | $19 | $27,874 | 18.10% | 20.00% | 1.90% |
| US Equity | VTI | 440 | $85 | $39,364 | 25.56% | 22.50% | -3.06% |
| International Equity | VEA | 945 | $36 | $36,030 | 23.40% | 22.50% | -0.90% |
| Emerging Markets | VWO | 170 | $38 | $6,781 | 4.40% | 5.00% | 0.60% |
| Other | TSX: XRE | 392 | $16 | $6,084 | 3.95% | 5.00% | 1.05% |
| Total | $153,998 |
This update is a perfect illustration for widely diversifying your stock portfolio across many geographies. Since the inception of the portfolio (excepting the 2008-09 financial crisis), you could count on US stocks to drag down the portfolio. But this year, there has been a change in fortunes. US stocks have YTD returns of 22.8 percent *and* on top of it, the US dollar has strengthened by 6 percent.
The only other asset class in the positive column is Developed Markets excluding North America, which are up 8.8 percent YTD. Emerging markets were down 9.3 percent.
The big story this year has been the recent sharp rise in bond yields (recall that bond yields and prices move in opposite directions) resulting in a sharp drop in the price level of real return bonds and REITs. Fortunately, the bulk of the portfolio’s bond position is held in short-term bonds, which are less sensitive to interest rate movements.
Transactions
With half an year’s worth of dividends, interest and distributions adding up, the cash portion is now significantly above target. Therefore, we will deploy some cash into the two asset classes that are the most out of whack — bonds and Canadian stocks.
Buy 100 shares of iShares (TSX: XIC) at $19.25 plus trading commission of $9.99
Buy 68 shares of (TSX: XSB) at $28.55 plus trading commission of $9.99
Total cash deployed: $3,886
