Monday, July 21, 2014

Overall portfolio holding: recent buys falling

I'm holding onto my older holdings and smiling. At least my older holdings are not collapsing in value. My most recent investments are either treading water or falling dramatically.

I bought some D.UN for both my wife's portfolio and for mine. Hers has done well. Thanks to the monthly dividend, she is up very nicely. She is well positioned to handle a correction with aplomb. I'm down. I've been down almost from the day I bought my D.UN position. The dividend is nice but a little appreciation in stock price would be nice.

My Chartwell Retirement Residences is hanging in there but it certainly hasn't taken flight. Love the dividend but at this rate it will take some months to build up a comfortable cushion to protect my CSH.UN against a correction.

Both my Aston Hill Financial stock and my wife's are in the red, just slightly, but still in the red. I'd say it is in a holding pattern at the moment. I'm rooting for it but I'm not sure when AHF will find its footing.

Which brings me to my bet on a recovery in the housing market: Norbord Inc. (NBD). If one counts the pop I briefly enjoyed immediately after investing in NBD, I am already in correction territory with this stock. Norbord is down more than 12 percent from its recent high. If an overall market correction hits and NBD continues with its downward spiral, I'll have to re-evaluate Norbord.

I see the dividend as threatened in the coming months and that may briefly kick some more of the stuffing out of NBD. Norbord has a checkered history. I'll be watching this investment carefully for signs of recovery. I have my fingers crossed.

Tuesday, July 15, 2014

The power of dividends

When I sold my heritage English roadster, I put a chunk of the money into a tax free savings plan for my wife. That was less than a year ago.

It wasn't all that much money so I simply stuck the funds into two investments: some stock in Dream Office Reit (D.UN) and cash. Today that stock has appreciated in value but not by much. Yet, the total investment is up more than double the stock gain. Why? The D.UN monthly dividend.

As of today my wife's TFSP is up 8.1 percent. In a few more months her mix of cash and stock will be able to absorb a correction of ten percent and not dip into the red. Despite a double digit correction, she will retain more money in her TFSP than was originally invested.

And the cash portion of her TFSP is also generating a little income. Parked in TDB8150, an investment savings account, the cash is earning 1.25% while sitting on the sidelines. A little more than ten percent of my wife's TFSP savings is now in cash. It will soon be time to move it into a GIC paying about double the interest. (In today's low interest environment, some GICs are paying as well as bonds.)

With this mix of stock and cash, today my wife is enjoying an income of just more than seven percent. As the stock climbs in value and the cash dividends accumulate, the risk to the original investment is decreasing. By the time she is forced to begin withdrawing funds to live, this plan will have a solid mix.

I foresee the day when her TFSP pumps out enough money to balance her books in retirement for two full months. 16.7 percent of the year will be no longer require the financial support now supplied by RSPs. And funds taken from a TFSP do not enter into the equation for calculating the old age security clawback. An appreciated benefit.

Friday, July 4, 2014

Norbord: My latest investment

Norbord Inc. is one of the world's largest producers of oriented strand board (OSB). This is the board now commonly used in construction to replace plywood. OSB is an upgrade from the older chip board with its random arrangement of small slivers of wood.

Norbord has an annual capacity of 5.1 billion square feet (3/8" basis). It is a big number. The company has 11 OSB mills, a medium-density fibreboard (MDF) mill and two particleboard
mills plus a furniture plant, in Europe I believe. MDF is another staple in home construction today. Painted trim in new homes is often MDF as well as painted kitchen cupboards. I believe MDF can also be used as the core of wood veneer covered sheets.

With 47% of its assets in the United States, Norbord should benefit from a turn around in the American housing market. Another 40% of company assets are in Europe and a final 13% sitting in Canada, as the global economy gains strength Norbord should profit very nicely.

With a dividend of 9.2% calculated on yesterday's stock price, I decided it was as good a time as any to put some retirement money into Norbord. I sold my gold stock, BTO, and my drilling company exposure, CET, and moved the funds into NBD. I bought it yesterday at $26.24 and today it has climbed to $27.10. I have already enjoyed a 3.18% pop in the stock price. Neither BTO or CET are selling today at the prices at which I sold them yesterday. I'm smiling. (A few days after writing this, the Norbord share price dropped dramatically and my win turned to a small loss. Oh well . . . )

Am I confident that NBD will continue to climb. No. Heck, it might even retreat. (It did.) But the dividend plus the position of the company in the economy gives me confidence that this will play out well over the long term.

Is the dividend safe? Personally, I am not counting on it retaining its inflated value through 2015 but it should continue through the remainder of this year without being trimmed. Depending on the size of the dividend, I may make NBD an investment to hold and enjoy indefinitely. (If you do some research, you will discover that Norbord halted its dividend at the depths of the still all-too-recent recession. It has only been relatively recently reinstated.)

I have some funds still sitting uninvested. Unless there are some big changes made at CET, I won't be buying that stock again. But BTO is another matter. If it drops in price, I would consider investing in the little gold producer again. 2015 and beyond have the potential to be very good years for BTO. I'll keep an eye on the little Vancouver-based mining company.

My other recent investments, both REITS -- Chartwell Retirement Residences and Dream Office Real Estate -- have been been a mixed bag. My Chartwell is up more than $500 and pays a nice five percent dividend. The Dream Office I bought for my wife's portfolio is now up $660 but because of the very nice dividend her portfolio has enjoyed growth of more than $1200.

On the downside, the Dream Office (D.UN) that I bought for myself, I paid more for my stock than I paid for my wife's, has been in the red almost from the day I bought it. If I count the dividend, I am in the black but I think it is clear that I paid too much -- at least in the short term. When my D.UN climbs into the black, I may sell and try to find another investment. This will give me a more diverse portfolio and this is one of my core aims.

Addendum: Just about a year ago The Canadian Dividend Blogger posted a take on Norbord. It was a good piece. The CDB is an excellent blog to follow. Here is a link: Turnaround Story.

Tuesday, May 6, 2014

Mark McQueen takes another look at O'Leary Funds

For an interesting look at Kevin O'Leary and his foray into the mutual fund business, read:

Do O’Leary’s “Low Risk” retail investors know they’re long junk bonds? by Mark McQueen of Wellington Financial.

Maybe CBC's investigative journalists can look into this.

Do ETFs deliver as promised?

There are a number of sites promoting index investing using ETFs or low MER mutual funds. One site claims that a good portfolio can be assembled with just four TD e-funds.

I used to subscribe to the ETF-based portfolio approach and I am uneasy having strayed quite far from the index investing philosophy. Still, using this Graphing Tool found on the TD Asset Management website, I calculated how the above mix would have worked for me if I had used the approach for my portfolio in retirement. 

I easily beat the above no-brainer portfolio. Easily. And by a very wide margin.

I'm going to stay with my present approach. I watch for stocks recommended by analysts I respect. When the stock being discussed meets my needs, for instance it pays a handsome dividend, I buy a chunk of the action. 

Once I buy, I tend to hold. The stocks that I have sold have, as often as not, continued to climb. Some of the stuff I have bought burned me but the injuries were manageable. One has to cut one's losses, sell and move on. 

So far I am riding more winners than losers. This will change, there is no question, but the bull will stop and the bear will step into the spotlight for the index funds as well. As long as my investments don't wilt more than the ETFs tracking an index, I'll be O.K.

For instance, I bought some D.UN at just above $28 some months ago. It yields almost a hundred dollars every month. It has climbed almost a dollar since my purchase. The dividend amounts to more than 7 percent. Very nice. I really don't care where D.UN goes in the coming months, up would be nice but I can live with down. I'm in for the long haul and the dividend that looks solid at this time.

Name an ETF that delivers such a fine dividend. There are some but not many and most of these high flying ETFs are not on the no-brainer portfolio lists. For instance, I have a small holding of REM, an mREIT out of the States. It has been yielding about 15 percent. 

I don't believe that REM is on anyone's list of  no-brainer ETFs to be used in the building of a proper portfolio. Well, come to think of it, it is on one: Mine.

Saturday, May 3, 2014

The bull roars on!

 I wrote this a few weeks ago (Today is May 3rd, 2014.) and then didn't get around to posting it. It is a little stale-dated but the ideas are still valid. The retirement portfolio I manage, a mix of both my wife's and my savings, is up 5.54% YTD. I am beating almost every benchmark I follow and I am well ahead of almost all the no-brainer portfolios I follow as well.

What I find interesting is that if I had simply put all our savings into the TD Monthly Income I would be up approximately the same amount and I'd be holding a much less volatile investment. I believe there are other balanced funds and ETFs that are performing as well as the TD one. I'm going to have a look in the coming weeks.

Although I am not going to tell you how to create your personal no-brainer portfolio, I will tell you how some of the ETFs, which are commonly used as building blocks in such portfolios, have faired this year.

XSB: $28.53 on Jan. 2/1014 closed Apr. 17 at $28.66. It is up .35% with a yield of 2.547%.
XSB is used to give a portfolio some bond exposure. The short term of the bonds in this ETF cuts the yield but should increase resistants to a rapid drop in value should interest rates climb quickly.

XIC: $21.23 on Jan. 2/1014 closed Apr. 17 at $22.91. It is up 7.91% with a yield of 2.532%.
XIC is a capped version of an index ETF tracking the Toronto Stock Exchange. I like this capped ETF as opposed to XIU. Why? Think Nortel.

XSP: $21.12 on Jan. 2/1014 closed Apr. 17 at $21.47 It is up 1.66% with a yield of 1.397%.
XSP is often used in no-brainer portfolios to add the exposure to American equities. Personally, I don't like the fact that it is hedged to the Canadian dollar. I'd rather just take my chances with the exchange rate fluctuations. Note how poorly XSP has performed YTD despite the fantastic growth in the American market.

FIE: $7.11 on Jan. 2/1014 closed Apr. 17 at $7.22 It is up 1.547% with a yield of 6.648%. My Royal Bank stock (RY) is up 2.973% and the yield is only 3.868%. How does FIE manage to pay such a large dividend? asy. There is an ROC (return of capital) component in the FIE distributions. I'm not saying this is bad but you should be aware.

My gut feeling is to buy the financial stocks found on action buy lists or are widely believed to be ready to outperform. I haven't back tested this idea but I'm thinking it may be a better course of action that buying a financial ETF and riding the index. I own three financial stocks (RY, BNS, SLF and may add a fourth, FN).

XDV: $24.40 on Jan. 2/1014 closed Apr. 17 at $25.04 It is up 2.623% with a yield of 3.834%.
My RY stock pays a higher yield than this ETF. Throw in some of my other dividend paying stocks and a blend of my personal portfolio picks delivers a lot more bang for the buck than XDV. I own some Crescent Point, I like Inter Pipeline and I have bought Cathedral Energy on dips. All my dividend paying stocks have better yields than XDV and many have out performed it YTD as well.

XRE: $15.38 on Jan. 2/1014 closed Apr. 17 at $16.39 It is up 6.567% with a yield of 4.637%.
I confess I rather like XRE but I have always wondered if I'd be better off just buying the best and leaving the rest when it comes to REITs. To that end, I have not added to my XRE holdings but have instead been buying Dundee REIT (D.UN). Dundee is only up 2.671% YTD but I have hopes. Where Dundee shines is the dividend; It's yield is 7.568% and looks solid. Such a nice dividend is very important in retirement.

Late last year I advised my wife to invest her tax free savings plan in D.UN. Her plan is now up 7.736%. She gets a nice cheque once a month which goes into an investment savings plan paying 1.25%. The cash adds stability to her investment and gives her an immediate source of emergency funds.

I am also watching HR.UN as another good REIT play. I wish I'd have jumped in sooner but it still looks attractive. I plan on buying a few hundred shares on dips.

Thursday, April 17, 2014

Like shooting fish in a barrel

This year investing has been like shooting fish in a barrel. Heck, it has been even better than that. I haven't even fired a shot, or done much buying and selling, and yet just by being in the market I've been raking in the gains and dividends. A big smile fills my face.

All that said, some of the ghost portfolios that I created in order to get a handle on index investing are wilting in the straight away. At a time that I would have theorized they would be charging ahead of the pack, they are pulling up lame.

Take my no-brainer portfolio containing a mix of XSB, XSP and XIC plus a chunk of cash. It is only up 2.97 percent for the year. It is thousands of dollars off the pace being set by my managed portfolio. Not good. And to make matters worse, it doesn't pay anywhere near the dividend income that my personally managed portfolio delivers.

My high-yield no-brainer composed of a  mix of FIE, XDV, XBB, XRE and XMD is running neck and neck with my personal portfolio but I ask, "Is that good enough?" I think I can do better but I know my high-yield no-brainer portfolio is running flat out. Maybe I could tweak the mix but I'd just be doing some jiggling based on what has been delivered in the past. We all know there is no reason to believe the past will be repeated.

Another portfolio, a balanced portfolio I put together using iShares ETFs (CBO, FIE, XMI, XMM, XUS,CDZ, XFN, XRE, XUT, CPD and XEI plus about 5 percent in cash) is another weak performer. Heck, if I wanted a balanced portfolio without any hands-on involvement, the TD Monthly Income fund beat my iShares creation by more than 3 percent.

Years ago an editor at the paper at which I worked gave me a book detailing a pension strategy for Canadians. I must admit that my own portfolio borrows some from that book and other by famous pension managers, many in the States. For instance, I have a big chunk of my retirement money in REITs. Still, the portfolio I put together using my take on the book's investment approach is not quite delivering the goods as well as my own personal portfolio.

I put together a balanced portfolio using TD e-funds and it is not performing anywhere near as well as the TD Monthly Income. Not a all. This surprises me a little but not a lot. A few years ago, when the TD e-funds first appeared I bought a few. When they failed to impress, I dumped them. The results from my phantom e-fund portfolio is not coaxing my back to the e-fund fold.

So far the TD Monthly Income is besting my personal portfolio by a few thousands dollars and the iShares ETF XTR is outperforming me. Both a takes on a balanced approach to investing. And finally and ETF is in the lead, XTR is ahead of TDB622 at this point. Me? I'm in third place in a field of eight.

There is one more phantom portfolio but this one is a true phantom. It contains a mix with a lot of weight in the mortgage REITs sector. MORL and REM are two ETFs that many question the wisdom of owning. That said, if you'd have built a portfolio with these two high-yielding ETFs forming the backbone of your portfolio, you'd have done quite nicely this year. You would have enjoyed growth more than double any of the other portfolios in my phantom lot. I confess I own some REM and have never been unhappy with the decision. I fear to buy more, it is up quite nicely from my entry point and it is yielding dividend well up into the double digits.

I'm sure you have noticed that I haven't given you the percentage mix of my phantom portfolios but just the investments. This is because I want to encourage you to take the time and set up your own phantom portfolio(s) and back test your own ideas on no-brainer investing. You'll be putting from 35 to 50 percent in bonds and the rest in equities. The lion's share will be in Canadian equities with another chunk headed for the States and a smaller amount in the international markets. I would think that you might keep from 5-10 percent in cash but that will be your call, too.

You might be surprised to learn that your no-brainer portfolios lived up to, or down to, their name.