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 currently, pays an interest of 1.25 percent.
3Q-2013 Update
The Sleepy Portfolio has gained 10.9 percent year-to-date and 3.9 percent since my previous update.
Here’s how the portfolio looked as of October 2, 2013:
| Asset Type | Security | #s | Price | Market Value | Current % | Delta |
|---|---|---|---|---|---|---|
| Cash | TDB8150 | 8602 | $1 | $8,603 | 5.38% | -0.38% |
| Bonds | TSX: XSB | 773 | $28 | $22,023 | 13.76% | 1.24% |
| TSX: XRB | 275 | $22 | $6,119 | 3.82% | 1.18% | |
| Canada Equity | TSX: XIC | 1545 | $20 | $31,240 | 19.52% | 0.48% |
| US Equity | VTI | 440 | $88 | $40,124 | 25.07% | -2.57% |
| Developed Mkts | VEA | 945 | $40 | $38,830 | 24.26% | -1.76% |
| Emerging Mkts | VWO | 170 | $41 | $7,212 | 4.51% | 0.49% |
| Other | TSX: XRE | 392 | $15 | $5,904 | 3.69% | 1.31% |
| Total | $160,054 |
The third quarter can be best described as more of the same as the period before it. Interest-rate sensitive asset classes like bonds, real return bonds and REITs lost some more ground; US and developed markets stocks kept moving up and the TSX and emerging markets joined the party and rallied in the last quarter.
Transactions
Real-Estate Income Trusts (REITs) have lost about 12 percent this year (not counting distributions). As a result, the REIT holding in the portfolio — iShares S&P/TSX Capped REIT ETF (TSX: XRE) — is now significantly below target. Therefore, we will deploy the cash accumulated in the portfolio to purchase some REITs. The rebalancing event is also a perfect opportunity to replace the current REIT holding (XRE) with the cheaper Vanguard FTSE Canada Capped REIT ETF (TSX: VRE) for reasons outlined in this post.
Sell 392 shares of iShares S&P/TSX Capped REIT ETF (TSX: XRE) for total proceeds of $5,894.
Redeem 1583 units of TDB8150 for total proceeds of $1,582.
Buy 312 shares of Vanguard FTSE Canada Capped REIT ETF (TSX: VRE) for total cost of $7,476.
After making the transactions, the value of the portfolio dropped by $25 due to trading commissions ($20) and the spread between the sell price and the buy price ($5).
