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.
4Q-2013 Update
The Sleepy Portfolio gained 8.4 percent since my previous update. During the calendar year 2013, the portfolio gained 20.3 percent making it the best year since inception.
Here’s how the portfolio looked as of January 10, 2014:
| Asset Type | Security | #s | Price | Current Value | Current % | Delta |
|---|---|---|---|---|---|---|
| Cash | TDB8150 | 7874 | $1 | $7,874 | 4.54% | 0.46% |
| Bonds | TSX: XSB | 773 | $29 | $22,146 | 12.76% | 2.24% |
| TSX: XRB | 275 | $22 | $6,130 | 3.53% | 1.47% | |
| Canada Equity | TSX: XIC | 1545 | $22 | $33,542 | 19.33% | 0.67% |
| US Equity | VTI | 440 | $96 | $45,965 | 26.48% | -3.98% |
| International Equity | VEA | 945 | $41 | $42,706 | 24.61% | -2.11% |
| Emerging Markets | VWO | 170 | $40 | $7,388 | 4.26% | 0.74% |
| Other | TSX: VRE | 312 | $25 | $7,806 | 4.50% | 0.50% |
| Total | $173,557 |
The fourth quarter was all about stocks. US stocks and developed market stocks posted significant gains and Canadian stocks also joined in the rally. Emerging markets were left out of the rally and treaded water.
Transactions
The US stock portion of the portfolio is now significantly above target. So, we’ll take some profits and put it to work into the lagging asset classes: short-term and real return bonds. This rebalancing also provides us with the opportunity to replace existing holdings with the Vanguard Canadian Short Bond ETF (TSX: VSB) and the BMO Real Return Bond ETF (TSX: ZRR) for reasons outlined in this previous post. To convert USD into CAD, we’ll do a Norbert Gambit by buying TD Bank on the NYSE and selling it on the TSX and save about $65 on the currency exchange.
Sell 61 shares of Vanguard Total Stock Market ETF (VTI) for total proceeds of US$5,835.
Buy 65 shares of TD Bank (NYSE: TD) for total proceeds of US$5,834.
Sell 65 shares of TD Bank (TSX: TD) for total proceeds of $6,340.
Sell 773 shares of iShares DEX Short Term Bond ETF (TSX: XSB) for total proceeds of $22,129.
Sell 275 shares of iShares DEX Real Return Bond ETF (TSX: XRB) for total proceeds of $6,117.
Buy 1043 shares of Vanguard Canadian Short Bond ETF (TSX: VSB) for total proceeds of $25,939.
Buy 534 shares of BMO Real Return Bond ETF (TSX: ZRR) for total proceeds of $8,645.
After making the transactions, the value of the portfolio dropped by $85 due to trading commissions ($72) and the spread between the sell price and the buy price ($13).
