I launched this RRIF model portfolio in February 2013 for readers of my Income Investor newsletter, so this is its fourth anniversary. Its goals are to protect capital and to provide higher cash flow than investors could get from conservative securities like bonds and GICs. The initial value was $49.910.30.
This portfolio balances the two objectives of income and safety by putting a significant amount into low-risk assets and the rest into higher-yielding securities. Here are the current positions in the portfolio with a commentary on how they have fared since the time of the last review in August 2016.
MAXA Financial five-year GIC. Our original three-year GIC matured last year at this time. We reinvested the $13,418.75 we received (principal and accrued interest) in a new five-year GIC paying 2.5 per cent. This GIC is redeemable, so if rates rise we can cash in and trade up. Also, it makes annual payments, so we received interest of $335.47 this month. The GIC will mature in February 2021.
Phillips, Hager & North Short Term Bond and Mortgage Fund (RBF1250). This low-risk fund was selected for the stability it brings to the portfolio. However, short-term bond funds, by definition, provide little return, especially during a period of low interest rates, and occasionally they can lose money. Since the last review in August, the net asset value (NAV) has declined by $0.08, which was just about offset by the distributions we received.
CI Signature Dividend Fund (CIG610). This fund invests primarily in preferred shares and dividend-paying large-cap stocks, such as major U.S. and Canadian banks, Enbridge Inc., etc. After a slump at the start of 2016, preferred shares rebounded nicely, and the net asset value of this fund is ahead by 50 cents since the last review. We received distributions totaling $0.5114 per unit, including a year-end distribution of 31.14 cents per unit that was mostly in the form of capital gains. The usual monthly distribution is 4 per unit.
PIMCO Monthly Income Fund (PMO005, front-end units). This all-bond fund was added to the portfolio in August 2015 to increase the fixed income weighting. The portfolio is composed of investment-grade bonds from developed countries around the world as well as some mortgage-backed securities. It pays monthly distributions, which are currently running around 4 cents per unit. As well, there was a year-end special distribution of almost 40 cents per unit. The NAV was down 23 cents in the latest period, but the distributions more than made up for that.
Sentry U.S. Growth and Income Fund (NCE737). This fund was added to the portfolio in August 2013 to obtain more exposure to the U.S. market. It invests in a portfolio of U.S. dividend-paying stocks, both common and preferred, with a large-cap bias. The net asset value increased by $1.40 during the latest period to $20.40 from $19, and we received six monthly distributions totalling 30 cents per unit.
BCE Inc. (TSX, NYSE: BCE). BCE shares sipped back after last summer's strong showing, with the price dropping $2.90. We received two quarterly distributions totalling $1.365. The dividend will increase by 5.1 per cent with the March payment.
Inter Pipeline (TSX: IPL, OTC: IPPLF). Inter Pipeline continues to rally, gaining $1.76 per share. We also received dividends totalling 66.5 cents per share for a total return during the period of 8.7 per cent.
Brookfield Infrastructure LP (TSX: BIP.UN, NYSE: BIP). This Bermuda-based limited partnership split its shares three for two in September. So for every 100 shares you owned before, you now have 150. The distribution was adjusted accordingly. This LP, which invests in infrastructure projects around the world, is our strongest performer to date.
Emera Inc. (TSX: EMA, OTC: EMRAF). We added this utility stock in August 2016. It has slipped $2.51 per share since that time on rising interest rate concerns. We received $1.045 in dividends, leaving us with a small loss of 3.2 per cent for the period.
Cash. We kept the cash balance of $1,014.16 in a high-interest savings account with EQ Bank paying 2 per cent. Interest earned in the latest period was $10.14.
Here's a look at the RRIF Portfolio as it stood at the close of trading on Feb. 17. I have included the accrued interest on the GIC in the retained earnings column. Note that commissions are not deducted and that U.S. and Canadian currencies are treated at par. Although this is a RRIF portfolio, withdrawals are not factored in, as this would make it impossible to track performance accurately.
Comments: The RRIF Portfolio increased in total value by $3,061.53 in the latest six-month period for a gain of 4.6 per cent. Since inception, four years ago, we have a gain of 38.7 per cent, for an average annual compound rate of return of 8.5 per cent. This is well in excess of our target and a very good result in this low interest rate environment.
Changes: I see no reason to change any of our holdings at this time. However, we will use some cash to add to some securities, as follows.
CIG610 – We will purchase another 20 units at a cost of $292.60. This will bring our total to 460 and reduce retained earnings to $38.02.
PMO005 – We will buy 20 units for $281.80, bringing our total to 440. Our retained cash will be reduced to $104.12.
BCE – We'll take advantage of the price pullback to add five shares for a cost of $293.80. We now own 130 shares and have $85.67 left in cash.
We now have retained earnings and cash totalling $1,550.64. We will keep the money invested in EQ Bank at 2 per cent.
Here is the revised portfolio. I will look at it again in August.
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Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca.
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