Portfolio Update

My RRSP holdings at TD Canada Trust have been transferred from TD to Clearsight in-kind, meaning that they been transferred whole without being sold first. I was only required to sell my TD eFunds to transfer them. Now my advisor and I are getting ready to sell all my TD holdings and start my long-term retirement portfolio anew. My advisor forwarded me a suggested portfolio on Friday:

RRSP holding Type Account %
Value Trust
US Equity 15%
International Stock Fund
Global Equity 35%
Canadian TSX60 index Canadian Large Cap 40%
Energy Index
Canadian Energy Equity 5%
Growth Opportunities
Canadian Small Cap 5%

Here’s the total asset allocation breakdown:
15% US Equity, 35% International Equity, 40% Canadian Large Cap Equity, 5% Canadian Energy Equity, 5% Canadian Small Cap Equity

This is similar to what he suggested before, the main difference being that he suggested a lower US portfolio allocation because he thinks their currency is set to take a beating; however, he says we will shift towards my 25%-25% allocation later as he, like me, believes in keeping a fairly static asset allocation over the long term. Also, it says TSX60 Index above, but it is actually iUnits XIC ETF which no longer tracks the S&P TSX 60 but tracks the X&P TSX Composite.

Here are the changes I want to make to it:

  • Add 25% to fixed-income. TD Canadian Bond fund or Altamira Bond fund would be my choices there.
  • No separate energy equity right now. There is plenty of energy stocks in the Canadian index and I am just not interested in playing around with an additional energy index right now, but it is something I will consider later.
  • Instead of CI Value Trust I would like to buy the Rydex S&P Equal Weight ETF. I have talked about it in several previous posts. Bill Miller’s fund is a lot riskier yet it has not managed to beat the equal-weight index.

This would make the allocation: 25% fixed income, 15% US Equity, 35% International Equity, 20% Canadian Large Cap Equity, 5% Canadian Small Cap Equity.

I am not sure what I will end up with. My advisor might be able to sway me the other way a bit, but hopefully we will end up with something he agrees is good for me and that I am comfortable with.

11 thoughts on “Portfolio Update”

  1. CI Value Trust – MER of 2.75%
    Templeton International – MER of 2.98%
    E&P Growth Opportunities – MER of 2.80%

    These are all loaded funds as well (ie. they are not no-load funds). You will more than likely be locked in or have to pay a penalty to get out.

    Looking these up at Morningstar, Templeton International Stock does not perform as well as its index. CI Value Trust seems to have got off to a fast start in its first 2 years, but has lagged the index in the last 2 years. The E&P Growth seems to have done very well indeed. I will have to take a look at this one.

    Personally, I like your modifications to your portfolio. I am older than you, so I have 35% fixed and 65% equities myself. Going forward, I have seen many reports stating that equity returns will be around the 6-8% range going forward, so it doesn’t seem prudent going all equities these days.

    It is great to see you taking the time to research your portfolio instead of blindly taking the advisors suggestions. Please keep us updated.

  2. If you look at Templeton International Stock fund’s long-term performance you will find it has outperformed its benchmark index. You can find quotes like this: “Of the six International Equity funds with 15-year records, Templeton International Stock ranks second with a compound annual return of 8.2% for the period ending Nov. 30, 2004. This is 3.6 percentage points per year higher than the MSCI EAFE Index (C$).” I really know very little about international mutual funds but it sounds like my advisor has been using this one for quite a while and is happy with it. It has also had the same manager for a long time.

    I had assumed these funds were all no-load but they are not, as you have pointed out. I went and looked at the prospectuses (sp?) and here’s what I found:

    -CI Value Trust can be purchased and sold after 3 years for free with the low-load option. If you sell before the 3 years are up, the sales charge is 3%.
    -Templeton International Stock fund can be sold after 2 years for free with the low-load option. If you sell before the 2 years are up, the sales charge is 2%.
    -E&P Growth Opportunities fund can be sold after 2 years for free with the low-load option. If you sell before the 2 years are up, the sales charge is 3%.

    This does not concern me too much. I would much rather be locked in to something as it will force me to stay invested, at least on the 2-3 year time scale.

    The only fund where the high MER is a bit disconcerting is Value Trust which (after the MER) has not managed to do any better than the S&P 500 Equal Weight Index. I would much rather go for the index which is much lower risk being spread over the 500 largest market-cap companies. The other 2 mutual funds (Templeton International Stock fund and E&P Growth Opportunities) warrant the high MER because even after the MER, they seem to have done really well.

  3. For Templeton International, I was just looking at the information from Morningstar.ca.

    They only show history going back 5 years. They have it rated as a 3 star. I thought it seemed a high MER for an average performer. Since it hasn’t performed well in the last 5 years, it must have obviously performed well before that. You should do a little research. Maybe the manager has changed and that is why the last 5 years have been average.

    Personally, I prefer and use no load funds. That is just me. I assume that your advisor is not a fee-only advisor? If so, he would never recommend no load funds since then he wouldn’t get paid.

    Keep doing your research and remember, nobody cares about your money as much as you do.

  4. According to Morningstar, “Don Reed has been managing this fund since its January 1989 inception.” But thanks for bringing these things up. I will look into this fund a little more.

    My advisor is at Clearsight and as far as I know, the advisors do not get commissions directly. The company obviously makes money somehow and more commissions for the company will trickle down to the advisors. I guess they are not fee-only advisors, for the reason that you said, but I do not really understand what fee-only means… I know that you can be a fee-based client, where you pay a percentage of your assets (or something like that) and nothing else.

  5. Fee based advisor charges you a fixed amount of money. Either they charge you a fixed amount per hour, or possibly charge you a certain amount to set up your finances.

    Since you pay these people directly, then there is no conflict of interest. They very happily will recommend ETFs and no-load funds since they won’t be earning any commissions from what you buy.

    The commission based investors earn their money from the mutual fund companies. Mutual fund companies pay trailers to advisors who send them business. As you can see, there is a potential for a conflict of interest. Do they recommend what is best for the client or for the advisor? You should read The Naked Investor by John Lawrence Reynolds. Great book.

    You should always ask your advisor how they get paid.

  6. Dave: If I were you, the first question I would ask an advisor is how much fees / commissions they get. This is a critical question because if you end up paying even 1% of your assets in fees and if long-term returns range from 6-8%, you are shelling out 12-16% of your returns in fees.

    Whether I am investing myself or through an advisor or through a mixture of funds, the first thing I would do is create my benchmark portfolio composed of index funds / ETFs. I would track it over 3-5 years and if I am not able to beat my target by at least 2%, why even bother.

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