SMALL GAIN FOR TFSA PORTFOLIO

1
Internet Wealth Builder – March 30, 2015
Volume 20, Number 13
Issue #21513
March 30, 2015
Small gain for TFSA Portfolio
1
SMALL GAIN FOR TFSA
PORTFOLIO
A pharma stock with growth
potential
3
By Gordon Pape, Editor and Publisher
Ryan Irvine updates Boyd Group,
Caldwell Partners
5
Your Questions: XUU volume,
investing U.S. dollars, retirement
portfolio
7
Members’ Corner: RRIF
withdrawals
7
I N
T H I S
B U I L D I N G
The
I S S U E
W E A L T H
Internet Wealth Builder
Editor and Publisher: Gordon Pape
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Tax-Free Savings Accounts (TFSAs) have become immensely popular
since they were launched in 2009. One of the reasons may be that
they are extremely flexible – they can be used for any purpose from
building emergency savings to stock market day trading (although the
tax people may come calling if you’re too successful at that).
That’s why there is no one-size-fits-all model TFSA portfolio. How
you invest depends on your objectives and your time horizon. So the
IWB Aggressive TFSA Portfolio that I launched in March 2012 is
definitely not suited for everyone. It is intended for readers whose
goal is to maximize tax savings by investing in a small, low-cost
portfolio of domestic and international ETFs.
All the ETFs are equity-based; there is no fixed-income component in
this portfolio. This makes it higher risk and therefore only suitable for
investors who can handle volatility and have a long time horizon. This is
definitely not a model to use if you are saving for retirement, a child’s
future education, or a major purchase to be made within five years.
Here’s a look at the ETFs in the portfolio with some comments on
how they have fared since our last review on Nov. 19. Results are as
of mid-day on March 25.
iShares Core S&P/TSX Capped Composite Index ETF (TSX: XIC).
This ETF tracks the performance of the S&P/TSX Composite Index. The
index hasn’t been doing much of anything lately and the performance of
this ETF reflects that. The shares are down by a nickel since our last
review but that was made up for by distributions of $0.31 per share,
giving us a small gain of 1.1% since our last review.
iShares S&P/TSX Small Cap Index ETF (TSX: XCS). The slump
continues for Canadian small cap stocks. The shares of this ETF lost
another 3.5% during the latest period, dropping from $15.34 to
$14.80. The two quarterly distributions totaling $0.13 could not make
up for the loss. The net result is that this ETF is in negative territory
by a small margin.
iShares U.S. Small Cap Index ETF (CAD-Hedged) (TSX: XSU). In
contrast to the sinking Canadian small cap market, the U.S.
Continued on page 2…
counterpart did well. The share price advanced 9.4% during the
period plus we received a distribution of $0.20 per share for a total
Building Wealth’s The Internet Wealth Builder is published
Gordon
Pape
Enterprises
Ltd. but
All rights
return ofweekly
10.2%.byThis
fund’s
name
has changed
it still reserved.
tracks the
Russell 2000 Index.
iShares Core S&P 500 Index ETF (CAD-Hedged) (TSX: XSP). This
large cap index chalked up a modest gain of 1.7% since our last
2
Internet Wealth Builder – March 30, 2015
should be your choice if you don’t want the hedging
feature. XIN had been a laggard but did well in the latest
period with a gain of $2.47 per share plus a distribution
of about $0.30 for a total return of 12.2%.
TFSA Portfolio – continued from page 1…
counterpart did well. The share price advanced 9.4%
during the period plus we received a distribution of $0.20
per share for a total return of 10.2%. This fund’s name
has changed but it still tracks the Russell 2000 Index.
iShares MSCI Frontier 100 ETF (NYSE: FM). This ETF
tracks major companies in Third World countries from
Nigeria to Vietnam. It was hard-hit by the collapse in oil
prices however the loss was tempered by a year-end
distribution of US$2.98 per share. Still, the net result
over the latest period was a decline of 6.9%.
iShares Core S&P 500 Index ETF (CAD-Hedged)
(TSX: XSP). This large cap index chalked up a modest
gain of 1.7% since our last review in November. The
S&P 500 index, which this fund tracks, has been
bouncing up and down, setting new records and then
retreating. We received one year-end distribution of just
over $0.19 per share.
iShares MSCI Emerging Markets ETF (NYSE: EEM).
We added 25 shares of this emerging markets fund in
April 2014 when it was trading at US$41.57. The shares
did well for a few months, topping US$45 in June but
then went into a long decline as investor concerns grew
over the short-term prospects for emerging markets. The
price is down US$1.30 since November, which was
partially offset by a year-end distribution of US$0.535
per share.
BMO Nasdaq 100 Equity Hedged to CAD Index ETF
(TSX: ZQQ). This fund provides exposure to the top 100
stocks on the Nasdaq exchange. It gave a credible
account of itself during the latest period, adding $0.62 to
the price and paying a year-end distribution of $0.465
per share for a total return of 3.3%. That’s less than we
saw previously but his ETF still ranks as the number one
performer in the portfolio.
We received $2.13 in interest from the cash balance in a
high-interest savings account.
iShares MSCI EAFE Index ETF (CAD-Hedged) (TSX:
XIN). This fund invests in large-cap companies from
developed countries in Europe, Asia, and Australasia,
hedged back to Canadian dollars. It’s really a Canadian
replica of EFA, which trades in New York and which
Here’s a look at how the portfolio stood at mid-day on
March 25. The Canadian and U.S. dollars are treated at
par and commissions are not taken into account.
IWB Aggressive TFSA Portfolio (a/o March 25, 2014)
Security
Weight
%
Total
Shares
Average
Price
Book
Value
Current
Price
Market
Value
Cash
Retained
Gain/
Loss
%
XIC
XCS
XSU
XSP
ZQQ
XIN
FM
EEM
Cash
Total
Inception
19.6
7.7
17.9
19.1
18.1
9.7
4.1
3.8
0.0
100
215
135
170
205
140
100
30
25
$19.77
$16.32
$17.81
$16.25
$21.00
$19.68
$36.89
$41.57
$4,251.50
$2,203.20
$3,027.70
$3,331.65
$2,940.00
$1,968.00
$1,106.70
$1,039.25
$4.27
$19,872.27
$20,002.30
$23.71
$14.80
$27.29
$24.17
$33.65
$25.18
$29.82
$39.92
$5,097.65
$1,998.00
$4,639.30
$4,954.85
$4,711.00
$2,518.00
$1,057.20
$998.00
$6.40
$25,980.40
$114.48
$154.48
$135.68
$69.61
$123.89
$110.04
$114.11
$21.90
+22.6
- 2.3
+57.7
+50.8
+64.5
+33.5
+ 5.8
- 1.9
$844.19
+35.0
+34.1
Comments: The portfolio has gained 4.1% in the four
months since it was last reviewed at the end of
November. That’s an acceptable performance in the
context of the markets we have experienced. The U.S.
small cap, Nasdaq, and EAFE components were the
main contributors, which once again highlights the merits
of diversification.
Since inception three years ago, the portfolio is ahead 34.1%.
The average annual compound rate of return is 10.27%,
which is at the low end of our 10% - 12% target range.
Changes: We won’t make any changes to the basic
composition of the portfolio. It offers a good mix of TFSA
Continued on page 3…
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3
Internet Wealth Builder – March 30, 2015
TFSA Portfolio – continued from page 2…
Canadian, U.S., and overseas securities plus large and
small-cap stocks.
We don’t have enough cash in most cases to reinvest
our accumulated distributions, with one exception. We
will add to our position in XCS while the price is down, in
anticipation of an eventual turnaround. We have enough
cash to buy 10 shares at $14.80, for a total cost of $148.
That will leave us with $6.48 in retained distributions.
Remember that small purchases are for modelling
purposes only. If you want to reinvest your distributions,
the most cost-efficient way is by using a dividend
reinvestment plan.
Here is the revised portfolio. We will invest the cash of
$702.59 in a high interest savings account paying 1.1%.
I will revisit the portfolio again in September.
Gordon Pape’s books, RRSPs: The Ultimate Wealth
Builder and Tax-Free Savings Accounts, are available in
both paperback and Kindle edit
IWB Aggressive TFSA Portfolio (revised March 25, 2014)
Security
XIC
XCS
XSU
XSP
ZQQ
XIN
FM
EEM
Cash
Total
Inception
Weight
%
19.5
8.2
17.8
19.1
18.0
9.6
4.0
3.8
0.0
100
Total
Shares
215
145
170
205
140
100
30
25
Average
Price
$19.77
$16.22
$17.81
$16.25
$21.00
$19.68
$36.89
$41.57
Book
Value
$4,251.50
$2,351.20
$3,027.70
$3,331.65
$2,940.00
$1,968.00
$1,106.70
$1,039.25
$6.40
$20,022.40
$20,002.30
Current
Price
$23.71
$14.80
$27.29
$24.17
$33.65
$25.18
$29.82
$39.92
Market
Value
$5,097.65
$2,146.00
$4,639.30
$4,954.85
$4,711.00
$2,518.00
$1,057.20
$998.00
$6.40
$26,128.40
Cash
Retained
$114.48
$6.48
$135.68
$69.61
$123.89
$110.04
$114.11
$21.90
$696.19
A PHARMA STOCK WITH GROWTH POTENTIAL
Contributing editor Ryan Irvine is here this week
with a new stock pick and updates on two previous
recommendations. Ryan is the CEO of KeyStone
Financial and one of the country’s top experts in
small cap stocks. He lives in the Vancouver area.
Here is his report.
Ryan Irvine writes:
It’s not easy to find quality stocks at decent prices in today’s
market, but we have one for you this week. It’s Merus Labs
International Inc. (TSX: MSL, NDQ: MSLI), a specialty
pharmaceutical company focused on acquiring established
products. The company leverages its expertise in
European and North American markets to optimize the
value of underdeveloped pharmaceutical assets. It
currently has products in the area of urology/women’s
health, anticoagulants, and anti-infectives.
Corporate Strategy. Merus acquires
medicines in the following categories:
⋅
⋅
prescription
On patent but at maturity stage of product life cycle.
Branded generics.
⋅
⋅
⋅
Under promoted products.
Niche market pharmaceuticals.
Products with annual sales below the critical
threshold for large pharmaceutical companies.
Once a product is acquired, Merus implements a
focused sales and marketing plan to promote it with the
goal of increasing sales and market share.
Primary products. In July 2012, Merus acquired from
Novartis the Canadian and European rights (excluding
France, Spain, and Italy) to manufacture, market, and
sell the branded prescription medicine product
Emselex/Enablex (darifenacin) extended release tablets.
Darifenacin is a muscarinic antagonist used for the
treatment of overactive bladder with symptoms of urinary
incontinence, urgency, and frequency. The product’s
specific mechanism of action is the blocking of the M3
muscarinic receptor, which is primarily responsible for
bladder muscle contractions. As overactive bladder is a
chronic condition, Emselex/Enablex is prescribed as a
Continued on page 4…
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4
Internet Wealth Builder – March 30, 2015
Merus – continued from page 3…
medication to be taken once daily and the extended
release tablet format is produced in 7.5 mg and 15 mg
dosage strengths.
Revenues attributable to Enablex for the year ended
Sept. 30, 2014, were $20.7 million versus $22.2 million
recorded partially on a net basis for the prior year.
In September 2014, the company acquired from Novartis
the rights to manufacture, market, and sell the branded
prescription medicine product Sintrom (acenocoumarol) in
certain European countries. Sintrom is an anti-coagulant
drug prescribed by physicians for the treatment and the
prevention of clotting disorders like thromboembolism
diseases, which obstruct the normal flow of blood and can
create serious health problems in the process. Sintrom may
also be referred to as a blood thinner. It does not have the
capacity to dissolve clots that have already formed in the
blood vessels but rather is used as a preventative
treatment. It functions as a vitamin K antagonist and the
active ingredient is acenocoumarol.
Sintrom was approved in Europe in the early 1950s and
its patent expired in 1964. As a result, the product has not
only been on the European market for over five decades
but also faced generic competition over the same period.
It is important to note that the product is not subject to
intense competition from generics given its legacy nature
(effective and well known), its low price, and strong
market share. These key competitive features make
Sintrom uneconomical for new generic entries. In
calendar year 2013 the product had net sales of
approximately US$28 million in the territories acquired.
Threat. During the last year, Merus was informed by the
German Federal Joint Committee (G-BA), which is
responsible for directives on drug reimbursement policy,
that there is a plan to introduce a single reimbursement
class for all anticholinergic-based OAB products in the
German market. This new classification would effectively
set a maximum reimbursable price for public payers. The
Committee invited Merus to provide a rationale for
Enablex being excluded from the class, which the
company has done. The process of assessing
arguments for exclusion, the determination of a
reimbursement price for the class, and that price
becoming effective could take up to a year or more.
We believe it is likely that Merus will receive news, either
positive or negative, in this regard in mid-2015.
Management has stated that the company has factored
in a negative response to its 2015 EBITDA guidance of
approximately $30 million. A positive response would
likely provide upside on the EBITDA guidance for 2015.
If darifenacin is not excluded from the class and is
subject to a maximum reimbursement price, there may
be a material adverse effect on sales.
Growth. Merus’s acquisition of Sintrom was made late in
fiscal 2014 and contributed less than one month of
revenue to 2014 results. As such, we expect the
company, which had net sales of approximately US$28
million in the applicable European territories in 2014, to
more than double its consolidated revenues and
EBITDA. Sintrom will be sold predominantly through
distributors with whom Merus already has established
relationships to wholesalers and pharmacy networks.
Acquisitions. The new management team reported they
were pleased with recent business development
momentum. Over the last two months, the company has
initiated active discussions on ten products with combined
EBITDA of over $100 million per year, with five global
pharmaceutical companies. Management reports that
cash generation from existing products and access to
future capital to finance new deals has never been better.
The company believes it is well positioned to execute one
or two small acquisitions with existing financing.
Management change. Another potential positive for Merus
was the company’s late fall management change. In our
opinion, a number of institutional investors were negative
on the prior leadership and the company’s new CEO,
Barry Fishman, is the former CEO of Teva Canada and
previously of Taro Pharmaceuticals (Canada). He comes
with a good track record and, at the very least, gives the
company a fresh outlook. While with Taro, he grew
Canadian revenue by three times in three years and as
the CEO of Teva Canada by five times in 10 years.
Perhaps more importantly from our perspective, he
managed to consistently grow profit faster than revenue.
Conclusion. While the North American biotech and
specialty pharma segment is relatively richly valued at
present, our investment thesis on Merus is three
pronged. First, there has been a positive management
change; second, there is new accretive cash flow from
recent acquisition (Sintrom); and third, we see attractive
relative valuations. Merus trades at a discount relative to
its Canadian peers and this held the largest weighting in
our decision to buy the stock.
Management has stated that Merus’s baseline adjusted
EBITDA generated from existing products, after
factoring in a potential price reduction for Enablex in
Germany in mid-2015, is expected to remain steady in
the $30 million range over the next few years. Results
could be materially higher if the company’s current
Enablex price level is sustained. This does not factor in
future acquisitions.
Continued on page 5…
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Internet Wealth Builder – March 30, 2015
Merus – continued from page 4…
Based on the $30 million baseline adjusted EBITDA,
Merus trades at 7.7 times enterprise value to EBITDA as
compared to Cipher’s ratio of 18 and another Canadian
specialty pharma peer, Biosyent Inc., at 25 times. From
a balance sheet and execution perspective Cipher has
been superior to Merus. However, year-to-date in 2015
Merus’s shares have gained 25% whereas Cipher is flat
and Biosynt is down 12%.
If Merus investors view the new CEO and his vision for
the company as a positive and the company hits
EBITDA targets in 2015 and pushes into profitability, the
stock could continue to be re-rated with a higher
multiple. Given the higher leverage and uncertainty
related to pricing of Enablex in Germany, we believe that
Merus deserves to trade at a discount to the average
specialty pharmaceutical company but the current
discount is likely too large.
Our fair value estimate on the company is for an EV/EBITDA
of 10.5 (still a significant discount to peers) with a price of
$3.30. As such, we rate the company as a Buy.
Warning. Near-term caution is needed in the biotech
sector. The Nasdaq Biotech Index has roared out of the
gate for the second year in a row and with the index
itself holding a p/e of over 50, the sector is broadly
overvalued. Similar to 2014, the index is up more than
20% already in 2015. Adding fuel to the potentially
overvalued flames, the index is up about 240% since the
beginning of 2012. That dwarfs the 82% gain logged by
the Nasdaq 100 tech index, which tracks the largest
technology companies listed on the exchange. Mid last
week, the sector dropped over 4% in one session. The
concern for investors now is that the sector has gotten
ahead of itself and is due for a correction. We believe
this is necessary and healthy.
If we look back to 2014, from late February through mid
April the Nasdaq Biotech Index gave up all of its gains
from the first two months and was down on the year for a
brief period, falling a total of 21%. That said, the index
quickly recovered and finished the year well above its
early year highs. We would not be surprised to see a
similar correction in this volatile sector once again at
some point in 2015. We would see this as a buying
opportunity for Merus and potentially another Canadian
specialty pharma company we follow closely.
Action now: With this in mind, our strategy at present
would be to buy a half position in Merus with an eye to
adding the rest when the biotech segment settles. The
stock closed on Friday at C$2.72, US$2.13.
RYAN IRVINE’S UPDATES
Boyd Group Income Fund
(TSX: BYD.UN, OTC: BFGIF)
Collex (23 centres) will be rebranded within the next six
to twelve months as part of Boyd’s single brand strategy.
Originally recommended on Aug. 30/10 (#20131) at
C$5.50, US$5.20. Closed Friday at C$52.33, US$41.92.
The company is also a major retail auto glass operator in
the U.S. with locations across 28 U.S. states under the
trade names Gerber Collision & Glass, Glass America,
Auto Glass Services, Auto Glass Authority, and S&L Glass.
As well, the company operates two third-party
administrators that offer first notice of loss, glass, and
related services. Gerber National Glass Services is an auto
glass repair and replacement referral business with
approximately 3,000 affiliated service providers throughout
the U.S. under the Gerber National Glass Services name
and Netcost Claims Services which, in addition to its
referral business, also owns and operates its own call
centre and offers roadside assistance services.
My first update is in reference to long-time favourite Boyd
Group Income Fund, which we highlighted as a Buy in late
August 2010. We updated the stock in early November with
its shares closing at the $42.80 range. At that time we
ranked it a Hold for investors with a time frame of six
months or less and a Buy for those with a time horizon of
greater than one year. The stock continues to perform well,
closing Friday at C$52.33, US$41.92.
The fund, through its operating company The Boyd
Group Inc. and its subsidiaries, is the largest operator of
non-franchised collision repair centres in North America
in terms of number of locations and sales. The company
has locations in five Canadian provinces under the trade
name Boyd Autobody & Glass (38 centres), as well as in
15 U.S. states under the trade names Gerber Collision &
Glass (233 centres), Collision Revision, and Collex
Collision Experts. Collision Revision (16 centres) and
On Jan. 5, the Boyd Group, announced that it added six
new locations in Florida through the acquisition of
Craftmaster Auto Body Group Inc., a full-service auto
collision repair service provider in the Melbourne area.
The acquisition is expected to be immediately accretive
Continued on page 6…
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6
Internet Wealth Builder – March 30, 2015
Ryan Irvine’s Updates – continued from page 5…
to earnings and cash flow. Craftmaster was established
in 1981 and generated sales of approximately US$13.6
million for the trailing 12 months to August 2014.
The purchase price of approximately US$7.4 million,
subject to post closing adjustments, will be funded through
a combination of seller financing and cash. This price
reflects a valuation multiple that is within the range of other
recent multi-location acquisitions completed by Boyd.
Just three years after entering the Florida market, Boyd
has become the leading operator of auto body repair
centres in the state. With the acquisition of the six
Craftmaster shops, Boyd's Florida operations have
grown to 50 locations and all will operate under the trade
name of Gerber Collision & Glass once Craftmaster has
been rebranded. In total, Boyd will operate 323 collision
repair locations across 17 states and five provinces.
Conclusion. Boyd has been a tremendous long-term
investment for our clients. The stock has performed
remarkably well both in terms of capital appreciation from
the $5.50 range and its return of capital in the form of
distributions. We see the company as largely recession
resistant and one that benefits from a higher U.S. dollar.
Boyd is trading at approximately 24 times estimated
2014 adjusted earnings and at 19 times 2015 estimated
adjusted earnings. While not cheap, when you can
purchase a company that has continued to deliver
market-beating growth for the past six years at market
equivalent multiples (the stock trades at close to the
broader Canadian market p/e multiple over the next
year), it begins to look attractive. Again, the stock is by
no means cheap but the current correction has made a
long-term winner more attractive to investors.
We have seen growth actually accelerate over the past
eight quarters and we expect continued solid growth
moving forward. The company is due to report its 2014
year-end numbers within the next week.
Action now: We maintain our near-term rating (six
months or less time horizon) at Hold and our long-term
rating (1-5 year time horizon or greater) at buy.
The Caldwell Partners International
(TSX: CWL, OTC: CWLPF)
Originally recommended on Feb. 25/13 (#21308) at
C$1.04. Closed Friday at C$1.30, US$1.05.
We introduced The Caldwell Partners International in
February 2013 to IWB readers when the stock traded at
$1.04. Today, with the company recently releasing its latest
results we review the numbers and update our rating.
This is a true micro-cap and, as such, is not suited for all
investors. Founded in 1970, The Caldwell Partners
International is an executive search consulting firm. The
company, through a predecessor corporation, became
the first retained consulting organization in Canada to
specialize in representing employers in the recruitment
of executives. Today, Caldwell is one of North America’s
premier providers of executive search. The company has
built a solid reputation for providing successful searches
for boards, chief and senior executives, and selected
functional experts. Caldwell has offices in Vancouver,
San Francisco, Los Angeles, Dallas, Calgary, Atlanta,
Toronto, Stamford, New York City, and a strategic
presence in London and Hong Kong.
In late fall management reported that the company had
acquired Hawksmoor Search, an executive search firm
focusing on the insurance industry. Based in London,
Hawksmoor Search is a retained executive search
boutique specializing in board and senior management
recruitment for clients in the insurance and reinsurance
markets worldwide. The firm was launched in 2010 by
Matthew Andrews, an executive search professional
serving the insurance industry since 1987. Management
stated that the acquisition was entirely client-driven and
solely motivated by what serves the needs of the
company’s respective clientele. The expansion of
Caldwell’s footprint and broadening of its industry
coverage will allow the company to serve its clients in a
much more integrated fashion.
Earlier this year, Caldwell reported that its fiscal 2015 first
quarter operating revenue increased by 20% (15%
excluding a 5% variance from exchange rate fluctuations)
over the comparable period last year to $12.4 million. U.S.
revenues increased 24% (16% excluding an 8%
favourable variance from exchange rate fluctuations) to
$8.1 million (2014: $6.5 million), driven primarily by an
increase in search volumes partially offset by lower
average fees during the current year. Revenues from
Canadian operations increased 12% to $4.3 million (2104:
$3.8 million), generated by higher search volumes
partially offset by lower average fees.
At just under 14 times trailing earnings, Caldwell
appears neither extremely cheap nor expensive on first
look. However, the company has about $9 million in
unencumbered cash or just over $0.41 per share.
Stripping out the cash, the company trades at a more
attractive 9.5 times trailing earnings. We also expect
reasonable growth in revenues in 2015.
Action now: We continue to Hold existing positions for a
strong yield (6.5%) and moderate growth potential. Expect
the stock to be volatile due to the low public share float.
- end Ryan Irvine
Building Wealth’s The Internet Wealth Builder is published weekly by Gordon Pape Enterprises Ltd. All rights reserved.
7
Internet Wealth Builder – March 30, 2015
YOUR QUESTIONS
XUU volume
Q – What is happening with XUU? The volume is
dropping off – no trades on March 5. – C.A.H.
A – XUU is the trading symbol for the unhedged version
of the iShares Core S&P Total Market ETF. I
recommended it on March 2 for readers looking for the
broadest possible exposure to the U.S. market. This ETF
has only been around for a short time and is not well
known to investors. As a result, volumes have been very
light with only a few thousand units changing hands
most days, and sometimes even. The units didn’t trade
at all on March 5 and 13 but that was an aberration.
Incidentally, the hedged version of this ETF, which
trades as XUH, also has low daily volumes.
U.S. markets have been sliding in reaction to the rising
greenback and concerns that the Federal Reserve Board
will begin hiking interest rates soon. As a result, this ETF is
down from its original recommended price. However, this
security should be seen as a core long-term hold, not as a
trading vehicle, so don’t be overly concerned about the
price pullback. Treat it as a buying opportunity. – G.P.
Investing U.S. dollars
Q – I have a considerable amount of U.S. dollars in my
RRSP that I wish to invest in U.S. dollar fixed income
holdings. Do you have any recommendations? – Bob R.
A – You might want to look at the iShares Core U.S.
Aggregate Bond ETF, which was added to our U.S. MiniPortfolio in January. It trades under the symbol AGG.
The fund tracks the performance of the total U.S.
investment grade bond market and is has about $23
billion in net assets (figures in U.S. dollars). Monthly
distributions vary but lately have been about $0.18 per
unit. The fund showed a total return of 5.07% over the
12 months to Feb. 28.
That said, the fund has been on a downward trend
recently due to concerns about coming rate hikes in the
States. Now that the Federal Reserve Board has
indicated it will likely start raising rates as early as June,
that pattern could continue. Don’t be surprised,
therefore, if the market price declines in the coming
weeks. However, a further rise in the value of the U.S.
dollar against the loonie could more than offset that.
If you want to reduce interest rate risk, look at the
iShares Core Short-Term USD Bond ETF (NYSE: ISTB).
It invests in a diversified portfolio of government,
corporate, securitized, and emerging markets bonds with
maturities of one to five years. Your returns will be much
lower – just 1.15% in the year to Feb. 28. But the risk is
much less as well. – G.P.
Retirement portfolio
Q – I am approaching retirement and have been
managing my money myself with some help for only part
of it (equities). Over the near term I will want to have
over $1 million invested safely to return about 6.5%. Is
there an easy approach to this? Are there sample lists of
investments to create such a portfolio or should this be
a more complex exercise? I'm sure there are many
people in this situation. – Paul H.
A – Everything depends on your definition of “safely”. If
you mean risk-free, the answer is there is no way to
achieve that level of return. If you mean low-risk, then
yes, it can be done with careful management. Our
Conservative Portfolio, which was updated in the March
16 issue, has averaged 8.8% over 3-1/2 years. It
contains a modest level of risk but the downside is
limited. It could certainly serve as a model as to how to
create the type of portfolio you want but given the
amount of money involved you may wish to get
professional assistance. – G.P.
MEMBERS’ CORNER
RRIF withdrawals
Member comment: Many thanks for your invaluable
investment info. Further to your comments in the latest
IWB regarding RRIFs, I should add that, since my
spouse is 12 years younger than me, my minimum
withdrawal rate drops from 7.38% (first year) to 3.23%. It
only reverts back to 7.38% in 12 years from now. Some
of your readers may not be aware of this. – Henry G.
Response: That’s correct. You can choose to base your
minimum RRIF withdrawal on the age of a younger
spouse. But it must be done at the time the plan is set
up; you can’t switch later. – G.P.
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