My alternative to a portfolio manager

I have a friend approaching 80. He is a very bright guy and so when he told me that he handed his assets over to a manager, I stopped and listened. I have steered cleared of managers since getting badly burned by London Life and its mismanagement of my accumulated insurance policy savings. Was I wrong?

My friend's manager, whom I gather collects a percentage of the investment under management, has put my friend's savings in a number of mutual funds. I assume this means he pays a fee on each mutual fund plus the overall portfolio management fee. 

All these fees sound onerous. Still, if the manager delivers returns that best an asset allocation ETF like XEQT, I can see the benefit. XEQT, a complete global equity portfolio in one ETF, has delivered strong returns over the past year. YTD return is 15.97% and the 1-year return is 22.37% when the dividend is included. The fund has an annualized return of 12% since its  2019 inception.

Is XEQT suitable for my friend? Maybe not. At his age, he is no longer comfortable with the large losses a pure equity investment can suffer. That said, XEQT has some stablemates that add bonds to the mix.

For more info please click here: All-In-One ETF Portfolios.

Like my friend, I am old. Losses that once would have been recovered with the passing of time may not be recoverable today. For an example, think of Algonquin Power and Utilites Corp. (AQN). Given enough time, say a dozen years or more, my AQN losses might be erased. Today, it is quite possible my time will run out before a full recovery is realized.

The thing is, unlike my friend, I don't care. All I am concerned with is income, dividends. To this end I invest in from 20 to 30 individual dividend paying stocks. I pretty well ignore the day to day price changes. Yes, I have lost a lot on AQN and I've lost a lot buying Telus and Bell as well. But, in the grand scheme of things, the losses are manageable and the income solid. I make more than five percent on my retirement investments.

Note: the following was copied from my spreadsheet. My investments are broken down into sectors and I try to keep my exposure to no more than the percentage shown. Each separate investment also has a cap. I will leave it to you to set your own limits. The one piece of advice I have is do not put more than five or six percent in any one stock. Generally, I start getting uncomfortable when the exposure is greater than three or four percent. An investment shown in a bold, italic font is one that I do not own at this time but it is on my buy list.

Sectors

Financials 30%

BANK OF MONTREAL 4%

BANK OF NOVA SCOTIA 3%

CDN IMPERIAL BK COMMERCE 4%

BROOKFIELD AST MGMT-A LVS 3%

BROOKFIELD CORP CL-A LVS 3%

NATIONAL BANK OF CDA 4%

ROYAL BANK OF CANADA 5%

TORONTO DOMINION BANK 4%

Total of the above 30%

Utilities 20%

ALGONQUIN PWR&UTILITIES 2%

ALTAGAS LTD 3.5%

BROOKFIELD INFRASTRUCTURE PTNRS 3.5%

CANADIAN UTILITIES LTD. 3%

EMERA INCORPORATED 4%

FORTIS INC 4%

Total of the above 20%

Communication Services 10%

BCE INC 1.5%

COGECO COMMUNICATIONS INC 1.5%

QUEBECOR INC CL-B SV 2%

ROGERS COMMUNICATIONS INC 2%

TELUS CORP 3%

Total of the above 10%

Energy 10%

ENBRIDGE INC 3.5%

PEMBINA 3%

TC ENERGY 3.5%

Total of the above 10%

REITs 8%

BMO EQL WGT REIT INDX ETF 4%

CI CANADIAN REIT ETF 4%

Total of the above 8%

U.S. S&P 500 12%

ISHRS CORE S&P500 IDX ETF 12%

Total of the above 12%

International – Mainly Europe 4%

VIDY

Total of the above 4%

Materials (Agriculture) .75%

NUTRIEN (NTR)

Total of the above .75%

Metals and Mining (Industry) 1%

LABRADOR IRON (LIF)

Total of the above 1%

Food Products (Consumer Staples) .75%

ROGERS SUGAR (RSI)

Total of the above .75%

Transportation

ALGOMA CENTRAL (ALC) .75%

MULLEN GROUP (MTL) .75%

Total of the above 1.5%

Cash 2%

Cash 2%

Total of the above 2%

Total of all -- 100%

Algonquin Power, AQN, may suffer near-term volatility

Algonquin Power & Utilities Corp. (AQN) lost about a dollar on the open this morning. Is this a harbinger of stock price moves to come or has the damage been done and is it time for the healing to begin?

AQN reported its second-quarter financial results. The adjusted EBITDA increased 12% and the adjusted net earnings year-over-year rose 16%. The company has reduced its common share dividend again, this time by approximately 40% to $0.0893 per share. The reduction is somewhat larger than anticipated. This second dividend reduction continues the move towards financial prudence as AQN positions itself as a pure-play regulated utility.

 

A note here about the anticipated payout ratio. Management believes the revised $0.3572/share annual dividend will result in a payout ratio of 60%-70% once the current regulated asset base approaches its full earning potential. The closer the company comes to a 60% payout ratio, the less chance another dividend cut will occur.

 

The company also announced it is selling its renewable energy business for approximately $2.5 billion. Some investors had hoped the renewable energy business would sell for considerably more. For some, this announcement was a disappointment. Still, the sale will strengthen the AQN balance sheet as it moves its focus to being a regulated utility operation. In the long term, this transition should enhance the quality of earnings thus creating long-term value for shareholders.

 

The overall market sentiment appears cautious thanks to the dividend cut. The ongoing strategic changes only add to the uncertainty. Today the price dropped approximately a dollar on all the news. In the short term the stock could lose more share value but it probably will not be a lot as the negative news appears to be priced into the stock value now.

 

Christopher Huskilson, the current Interim CEO of Algonquin Power & Utilities Corp., is  the former CEO of Emera Inc. Huskilson has over 20 years of experience in the energy sector. Now with Huskilson at the helm, Algonquin is enjoying excellent leadership. When Huskilson expresses belief in the company's ability to improve returns and reduce external funding needs, his words inspire confidence.

 

Still, I would not buy Algonquin today. That said, I would not sell Algonquin at a loss today. There are indications that the AQN stock price may climb over the short term and, although I am not happy with it, I can live with the 4.8% dividend calculated on the closing price ($7.42) last Friday.

Dealing with today's falling markets

The markets all around the world have gone into tailspins. Why? There are lots of theories, all have a wee bit of truth, but no one has a compete handle on what is driving the losses. So, what does one do? I agree with The New York Times writer: do nothing. Be patient. This will pass and surprisingly soon. There is even a good chance that this global tumble will be followed by some markets actually reaching new highs.

If you have been in the market, Canadian or U.S., for some time, you can take solace in your portfolio bottom line. Even after today's crashing numbers, I bet you are very nicely in the green. Stay focused on your wins and you will get through this intact.

Perplexity compares XEQT to mutual funds

I asked Perplexity how owning XEQT, the complete Canadian portfolio in one ETF,  compares to owning a number of carefully chosen mutual funds to create a complete, diversified portfolio. Perplexity answered:

Answer:

 

The iShares Core Equity ETF Portfolio (XEQT) is an all-in-one ETF designed to provide broad diversification across global equity markets. It includes a mix of underlying ETFs that cover various regions and sectors, making it a convenient option for investors looking for a simple, diversified equity portfolio. Key features of XEQT include:

 

XEQT provides broad diversification with exposure to over 9,500 stocks across global markets, including US, Canadian, international developed, and emerging markets.

 

This level of diversification helps spread risk across various sectors, countries, and company sizes.

Low cost: With a management expense ratio (MER) of 0.20%, XEQT is significantly cheaper than most actively managed mutual funds

Lower fees can have a substantial impact on long-term returns.

Simplicity: As an all-in-one ETF, XEQT eliminates the need for manual rebalancing and simplifies portfolio management

You can achieve a globally diversified portfolio with just one investment.

Automatic rebalancing: The fund managers handle annual rebalancing, ensuring the portfolio maintains its target asset allocation

This helps in selling high and buying low, potentially boosting returns over time.

Tax efficiency: ETFs are generally more tax-efficient than mutual funds due to their structure and lower turnover.

Long-term growth potential: XEQT is designed for long-term capital growth, making it suitable for investors with a long time horizon and higher risk tolerance

 

Risk tolerance: XEQT is a 100% equity portfolio, which means it can be more volatile than balanced funds that include bonds. (My add: If you insist on bonds in your portfolio, consider XGRO for 80% equity and 20% bonds or XBAL for 60% equity and 40% bonds. I would never even consider holding more than 40% bonds even though this option is offered.)

 

Ensure XEQT aligns with your risk tolerance and investment goals.

Time horizon: Due to its all-equity composition, XEQT is best suited for investors with a long-term investment horizon (5 or more years with the accent on "more years".)

Home bias: XEQT has a 25% allocation to Canadian stocks, which is higher than Canada's global market capitalization. While this can provide some benefits for Canadian investors, it's important to be aware of this overweight.

 

When all is said and done, what we all want to know is how does XEQT perform when compared to mutual funds? Answer: XEQT more than holds its own.

 

XEQT: Historical performance has been strong, with notable returns over the past few years. For example, XEQT returned 17.05% in 2023, which is competitive with other investment options

Mutual Funds: Performance varies widely among mutual funds. While some actively managed funds may outperform the market, others may under-perform, especially after accounting for higher fees. For instance, the RBC Select Aggressive Portfolio returned 12.71% in 2023, which is lower than XEQT's performance

 

In conclusion: For investors seeking a simple, low-cost, and globally diversified equity portfolio, XEQT can be an excellent replacement for a portfolio of mutual funds. It offers broad diversification, professional management, and automatic re-balancing at a fraction of the cost of most mutual funds. 

 

However, as with any investment decision, it's important to consider your personal financial situation, risk tolerance, and investment goals before making a switch. If you decided that you prefer active management and are willing to pay the higher fees, you may still find value in a carefully chosen portfolio of mutual funds.

 

After Perplexity answers a question, it posts a number of suggestions for areas for future investigation. In this case, Perplexity suggested some of the following questions:

 

• What is the historical performance difference between XEQT and a carefully selected mutual fund portfolio?
• How do the distribution yields of XEQT compare to those of mutual funds?
• How does the risk of XEQT compare to other ETFs?
• How does the risk of XEQT compare to a mix of mutual funds?

Perplexity: a fine intro to Ai

What is the Ai program Perplexity? Is it a search engine?

Definition: Perplexity is a search engine that answers queries using natural language predictive text, utilizing sources from the web. It surpasses traditional search capabilities by incorporating AI-driven features that aim to provide more accurate, contextual, and comprehensive answers to user queries.

Launched in 2022, Perplexity is based on OpenAI's GPT-3.5 model and a standalone LLM with NLP capabilities for its free product. Pro version accesses GPT-4, Claude 2, and others. If you don't understand this answer, try asking Perplexity to clarify it.

Click the link to try Perplexity for yourself.

My next post will s demonstrate Perplexity in action.

Advice for a friend approaching retirement

I have a good friend who has just retired. He puzzles over what he should do now with his investment savings. He is no longer saving for retirement but he IS retired. The day that will never arrive has arrived.

My friend worked all his life. He will be collecting a tidy monthly sum from CPP. His wife didn't work as long as he did but she too will collect CPP but a lot less and some years in the future. She is a few years his junior.

Of course, they both will collect OAS. She will have to wait a few years before her cheques begin arriving but she will be 65 sooner rather than later. Time passes quickly.

My friend also has an excellent pension. This will be the main source of retirement income as his wife, if she has a company pension at all, will have much smaller pension than her husband. 

In the short term, my friends will be fine. They will be able to live with their reduced income until all sources of retirement income mature. At the point that they are both receiving CPP and OAS plus hubby's pension, they will have more than enough money to live very nicely.

The thing is, they both have retirement savings plans. What to do with these six figure accounts? This is not as easy a question to answer as one may think. I'd suggest they have at least three options:

Cash out the accounts, take the money and run. This is not possible if an account is a locked-in-plan of some kind. And, at any rate, this is not a good idea. Forget it. Never squander retirement savings.

Convert RRSPs to RRIFs and locked-in-plans to LIFs and be ready to withdraw annually the amount demanded by the government. The withdrawal increases with each passing year. Google it. In my opinion, there is only one place to put the money: equities. Equities increase in value in step with inflation and with any luck will increase in value quicker than inflation erodes that value.

How does one invest in equities? 

Set up a self-directed investment account with your bank, if possible. TD, Royal, Scotia, CIBC and others all offer this service. There are only three investments with which I concern myself:

• Money market funds. These are paying something in the order of 4.3% today with no risk to capital.
  
• Direct equity ownership. The big rule here is "diversify". Try to own no less than 20 stocks and no more than 30. Consider weighting your portfolio to stocks paying a good dividend.
  
• ETFs. My fave here is XEQT. This is an entire portfolio in one purchase, one ETF. If one does not need dividend income, XEQT may well be the way to go. Buy, hold and watch it grow in value over the years. XEQT holds no bonds but more than 9000 stocks from markets all around the globe.
  

Stay away from bonds. Do a little research and you will soon agree; for the small investor, bonds are not worth holding. And stay clear of mutual funds. ETFs are a "yes" and mutual funds are a "no". It is that simple. 

I don't have a good pension. I need cash flow. I own two dozen or so good, solid, dividend-paying stocks. The dividends pay the bills. My friend has a good pension. He and his wife do not need the cash flow. If I were him, I'd simply buy XEQT and let the units sit and grow in value. I might spend the small dividend income as "mad" money.

A TD Rep Critiqued My Portfolio: Passed!

I got a call late last week from my neighbourhood TD branch to arrange an interview with one of their experts who would critique my portfolio. I have always said "no thanks" to these invites but not this time. I decided to toughen up and take some criticism.

So, today at 10 a.m. sharp I was sitting in a small office with a TD rep hearing how well I was doing. He liked my all equity portfolio. He understood why I had absolutely no bonds in my portfolio and agreed with my decision. Quelle surprise! 

I explained how I made all the withdrawals from my RIFs and LIFs demanded by the government as withdrawals inkind. Withdrawals above the minimum, the ones that are taxed immediately, I withdraw as cash. He could see my reasoning and as my approach has been working for the past fifteen years or so, why disturb something with a solid history of working. If it ain't broke . . .

We sat and chatted for an hour. I escaped being given a dressing down. He had one suggestion and only one suggestion: I should maximize my effort to reduce the money held in my RIFs and LIFs. Upon the death of my wife and me, the money in these registered accounts will be income for my estate and may face an income tax of something like 53%. He told me to find some ways to pass more money onto my children and pass less onto the government.

I liked this rep and will spend some time with all the info he gave me as I departed.

Bank of Montreal Looking Good

The Bank of Montreal is down $1.59 right now to $119.69. Its dividend is at 5.18%. Its price could drop more. It has sold for much less in the past year.It dropped to a low of $102.67. I own enough BMO but if it got down to $102.67 again, I'd be buying.

If I did not own so much BMO today, I believe I would be adding to my holdings. The last BMO I added was in the $117 range. I have not regretted the purchase. Analysts see the stock going to $130.59 in the coming year.

For a retiree this is a no-brainer. The Bank of Montreal has the longest run of any Canadian bank of never missing a dividend. The run is approaching two centuries. If one is buying BMO for the dividend, for the 5.18%, your dividend is pretty safe, but, of course, there are no 100% guarantees. A $20,000 investment would return a little more than a thousand dollars annually if the stock was purchased today and it is not hard to see a possible gain of $1800 in the coming year.

_____________________________________________________________

The Bank of Montreal closed last Friday a full three dollars lower than the price posted above. BMO is now yielding 5.3%. Nice. I am watching this stock closely. There will come a time when it will be hard not to add a hundred shares to my holdings.

Can ETFs best a high yielding stock portfolio in retirement?

Managing an income portfolio sounds time consuming. It could be but done right, and that means doing the minimum, it just sits essentially untended spitting out dividends. The overall value may go up and down at the whim of the market but as we are not paying all that much attention, the gains and losses go mostly unnoticed.

Over a lifetime of investing, I've invested in mutual funds, ETFs, stocks and bonds. I found mutual funds generally paid out too much in MER charges. Bonds, either purchased outright or bundled into an ETF like XBB, left me unimpressed. ETFs had their strengths, diversity being a big one, and pure stock portfolios delivered excellent yields thanks to the dividends. As you can see, I gravitated to owning individual stocks and ETFs.

Today, I own almost two dozen stocks and three ETFs and there are almost no surprises. I own Emera and Fortis, doesn't every retiree. I own the top six Canadian banks. The bank dividends are safe dividends. The Canadian banks have a history of hundreds of years of uninterrupted dividend payments. I also own pipelines and telcos. All the usual stuff. My portfolio has been more volatile than I like but I can ignore the ups and downs when the dividends continue to pay the bills. My portfolio yields 5% today.

But my mainly stock portfolio may be nearing its end. I have been experimenting with a nine ETF income portfolio with the stocks chosen for their overall excellent historic performance and a yield that is as good as my present stock portfolio. I insist on the yield being generous enough to cover all annual expenses so that one is not forced to sell units in order to live.

The nine ETFs making up the portfolio are:

• CDZ: iShares S&P/TSX Canadian Dividend Aristocrats Index ETF
• RIT: CI Canadian REIT ETF
• VIDY: Vanguard FTSE Developed ex North America High Dividend Yield Index ETF
• ZUT: BMO Equal Weight Utilities Index ETF
• ZWC: BMO CA High Dividend Covered Call ETF
• ZWG: BMO Global High Dividend Covered Call ETF
• ZWH: BMO US High Dividend Covered Call ETF
• XEI:iShares S&P/TSX Composite High Dividend Index ETF
• XSP: iShares Core S&P 500 Index ETF (CAD-Hedged)
  

I'd go into more detail but until I know more about how well this portfolio performs I am going to go light on the details. To work out the percentage of each ETF in the portfolio, I created a spreadsheet. I varied the percentages until I got something that I could live with and that delivered dividend income similar to my stock portfolio.
I have withdrawn $3,666.66 in each of the last two months as I created this portfolio in April with an amount of money equal to my actual portfolio on that day. My nine ETF portfolio has a value today of slightly more than my actual portfolio. In other words, so far this ETF approach is working. I kept about 10% of the portfolio in a cash account paying 4.55% and so it is no surprise that I have not had to sell any investments to raise money for the monthly payments.
There is one other portfolio approach that I am testing using Portfolio Manager and that is putting all my retirement savings in the iShares Portfolio-in-One-ETF: XEQT. I chose XEQT because it invests in about 10,000 stocks worldwide and it does not own any bonds at all. If you prefer a balanced portfolio containing some bonds, there are companion ETFs from iShares that include bonds.
As this is a very new portfolio opened with very little cash, I sold 69 units of XEQT this month in order to withdraw an amount of money equal to the amount  withdrawn monthly from my actual retirement portfolio. Of the three portfolios being tracked, the one that has the most value today is XEQT even after the unit sale.

Why run a portfolio when you can buy XEQT?

My personal portfolio is composed of a number of individual accounts holding a diverse mix of stocks and ETFs. I earn a good income from the dividends and the capital gains keep the overall value of my portfolio increasing. Yet, I cannot help but wonder if I could do as well or better by simply owning the iShares ETF XEQT.

XEQT is an exchange-traded fund (ETF) offering investors a complete portfolio in just one ETF. It is a complete portfolio assuming you don't want to hold any bonds. I don't. XEQT is an all-equity ETF. No bonds.

XEQT holds four iShares ETFs: 

• iShares Core S&P Total U.S. Stock Market ETF for U.S. equity exposure (44.6% weight)
• iShares Core MSCI EAFE IMI Index ETF for international developed markets equity (25.7%)
• iShares Core S&P/TSX Capped Composite Index ETF for Canadian equity (24.9%) 
• iShares Core MSCI Emerging Markets IMI ETF for emerging markets equity (4.8%)

This one ETF holding four ETFs provides a diversified portfolio of around 10,000 stocks representing the U.S., the international developed markets, the Canada market, and lastly the emerging markets. XEQT gives one exposure to the global equity market for a management fee of only 0.20% when last I checked.

XEQT only yields about 1.89% in dividends but it offers very good long-term capital growth. If I had all my money in XEQT I would have to sell some units annually and add that cash to my dividend income to cover my living expenses.

The simplicity and global diversity of XEQT makes it an appealing answer to portfolio management. I have decided to run a test. I have created a test portfolio composed of only XEQT. The test portfolio opened with a value equal to my portfolio at the close yesterday.

Today, as I write this XEQT is ahead by $518.07. This means very little but stay tuned. Getting out of the business of buying and selling stocks maybe possible. 😊 If you prefer Vanguard to iShares, Vanguard offers VEQT. Your choice. And if you insist on having some bonds in your portfolio mix, both iShares and Vanguard offer ETFs with traditionally balanced constructions as well.

Mullen Group (MTL)

 

Just a quick note before I get going on today's stuff.

I like the Mullen Group. I don't have the money at the moment to invest but if I can round up some cash I am in. 

The stock has dipped below $13 but has not rebounded greatly since touching its low for the year. Check it out. A good company at a good price with a well covered dividend paying out more than five percent. The payout ratio is around 50%. Ideal, don't you think? It sure looks like a buy to me.

And a friend, who is a fine investor, agrees with me on this one as do a number of analysts. Do a Google search. You will find MTL has one booster who sees MTL hitting $22 and the average target price is better than $17. It is hard to see a downside to this buy.

Cheers!

TD Bank is now a HOLD!

TD was one of my core holdings. I was content to hold TD and happy to add to my holdings when the price dropped. Adding to my holdings was a mistake. The market was onto something that I was not: TD was in deep legal trouble in the United States. The second biggest Canadian bank has now put aside hundreds of millions of dollars in anticipation of some damn big fines related to money laundering accusations in the States.

TD is still a core holding of mine. I cannot afford to sell it and as I had no intention to sell, the pain is mitigated. I will hold onto my stock and pocket the 5. 43% dividend. My guess is that the dividend is still safe. TD has gotten enough bad press. It does not have to soil its reputation with its first dividend reduction in its long history.

If you hold TD, as I do, your losses may be around a long time, and keep holding. If you are a value investor, move with care. TD may be facing fines of $1.5 billion U.S. plus annual remediation costs in the hundreds of millions stretched over about four years. The painful scenario appears to be already priced into the price of the stock but have both shoes dropped? I am not so sure.

TD is officially off my buy list.

Expert stock pickers can be wrong and often!

To avoid being sued, I blacked out the analyst's name but the important information is still here. This stock picker has a win-loss ratio of 8:32. Going by his recent picks, he was right only 20% of the time. This fellow should stick to coin-flipping.

His average return was in the red at -6.0%. This is really dismal.

Years ago I gave a few thousand dollars to London Life to invest for my retirement. London Life lost something in the neighbourhood of 75% of my savings. When I retired, because there was a maximum loss clause, London Life game me back 75% of my original investment.

Losers! And they took me down with them.

Invest in dividend-paying, blue-chip companies, spread your money around, in other words diversify, try to not time the market but keep some powder dry to buy when the bear is loose and you should easily best analysts like the one shown or the folks in charge of my London Life investment.

Playing B2 Gold to win

I find B2 Gold (BTO) appealing. Why? Because it is opening a gold mine in Nunavut come early next year. Gold mines are all too often found in iffy parts of the globe. Nunavut is a welcome change of pace.

I paid about $3.64 for my original 2750 shares. I saw it as a bit of a gamble but it is fun to gamble as long as the risk is not too high. I was comfortable with the risk/reward offered by B2 Gold. Shortly after buying BTO I received a dividend of about $150 Canadian.

A few weeks later I sold all my position for $3.88 a share. I made a capital gain of about $640. I immediately put $200 toward my 2025 income tax and used the remaining cash to fund a bid for 2900 shares of BTO at $3.60. It was another gamble. It took some days but the order was eventually filled.

B2 Gold then tumbled daily until it found support at about $3.45. On the surface, that represents a loss but after the dividend and my capital gains are factored in, I am still in the black on my B2 Gold purchase. I have another sell order sitting on the books. This time I am hoping for $4.20. I'm patient. I can wait.

The target value for BTO as shown by WebBroker as been climbing recently. Some analysts see BTO hitting $6.00 and even $7.00 within the coming year but it might be a volatile journey. If it is, I plan on being there to profit.

By the way, I am playing this game using my non-registered account. The CRA does not look kindly on investors using their registered accounts for anything resembling day trading. Gambling, especially when done repeatedly with one stock, is not for one's registered accounts.