An Inside Look at Mackenzie King
A pretty average month overall. The Canadian market was up marginally, but the US was up one percent. My Canadian portfolio continues to outperform the TSX with over a 1% gain, but my US stocks have been lagging with a slight loss this month. See the table below for specific stocks that have been under performing. The Canadian dollar dropped against the US dollar which helped my portfolio. On a year-to-date basis, results are not spectacular, but are still OK. Trend lines would indicate this could be an “average” year, and the having an average year is not all that bad.
|BB Total (no FX)||0.46%||3.32%|
|BB Total (incl FX)||1.23%||4.15%|
Following is a list of my individual stock gains and losses from January 1 to April 30, 2017. Definitely not as good as last year, but every year can’t have the phenomenal results of 2016. I like to get capital gains and it does increase my ability to generate dividends, but it is not the capital gains that drive my income in retirement – it is my dividends. Because of my strategy and stock selection criteria, my dividend stream continues to grow. In 2016 my Canadian dividends grew by about 18% over 2015. My US dividends grew as well, but because of the strengthening Canadian dollar the impact was less. My overall income in 2016 was more than 11% higher than in 2015. I expect 2017 income to continue to grow at a similar rate. My average dividend yield is 3.9% on Canadian stocks and 3.7% on US stocks. I have been withdrawing under 3.5% for living which is below the “rule of thumb” limit of 4%.
|Symbol||YTD gain||Yield||Symbol||YTD gain||Yield|
HERE is another article talking about the ineffectiveness of financial advisors and actively managed funds. They have a dismal track record.
If you are using an advisor, I suggest you dump them and do it yourself. Don’t be afraid to get tough with them. A current commercial on trading says it best, when the advisor defends his poor performance citing “the long game”. The client says, “This isn’t a game, this is my retirement.”
Here is another interesting look at financial advisors from Rob Carrick’s newsletter:
Ask Rob The question: “Do brokers in Canada have a fiduciary duty to manage their clients’ RRSPs in the best interests of those clients?”
My reply: No. Most investment advisers are bound by suitability standards, which mean recommended financial products have to be suitable for a client’s needs and situation. But there is no broad standard to put client interests first. An exception is a type of adviser for high net worth clients called a portfolio manager.
For several years, especially while I lived and worked overseas, I allowed a financial advisor to manage my retirement funds, with a strategy I approved. They never met or beat the market, but did protect me on the downside, especially during the crash of 2009. I had a long term return just under 7%, which was satisfactory. But shortly after I returned to Canada in 2014, they appeared to deviate from my strategy and begin to use a strategy of their own – I felt it was driven by commissions they could get from brokers floating new securities. When my retirement portfolio began to noticeably suffer I pulled in the rein. They didn’t like my message and told me I could take my portfolio elsewhere – which I did. This is just another example of financial advisors not working in the interest of their clients. Here is the letter I sent them:
Change of Strategy (letter to former advisor)
- Change of method of payment
Please change my preferred payment method from “fee based” to “transaction based”. I would like this to occur immediately if possible, but if there are contractual restrictions then make the change at the next available opportunity.
This means that either I will initiate any trades, or if you initiate them I will need to approve them before execution.
At the first of January each year I would like the minimum withdrawal required from each account for that year placed in my chequing account. Further withdrawals will be calculated based on our income tax situation.
- Portfolio Mix
The current mix is 70% equities and 30% fixed instruments. Conceptually I’m OK with that, however the current fixed component is not performing its intended role of protection on the market downside. Therefore I am considering lowering the fixed component in the near future. Until I find the right number I want no more additions to the fixed portion of the portfolio.
All equities will be traded on the TSX and must have three basic components:
- Strong large-cap company with a good financial history
- When dealing with US stocks I use the ValueLine rating of A++, but ValueLine does not rate any Canadian companies this high so we will need another metric.
- Long record of issuing dividends – 5 to 10 years – preferably over 3% yield
- Long record of increasing dividends annually – 5 to 10 years. Any company that has reduced its dividend during the past number of years (some leeway for the 2007/9 crash) will not be eligible.
- Fixed instruments
Fixed instruments are to be either government bonds or very strong corporate bonds or a related ETF. Preferred shares are not to be considered fixed instruments for my portfolio.
As many holdings in my current portfolio do not meet these criteria we will need to agree upon a transition process and associated timing.
Any instruments that do not meet the criteria need to be flagged for disposal. The only issue then becomes timing. Most of the current items in the portfolio that do not fit these criteria are in a heavy loss position. I will need your input as to what are their recovery prospects. If there is a reasonable likelihood of an upturn on these holdings in the next eighteen months then we will wait for disposal. If it looks like there is a permanent loss then we will dump them immediately and place the proceeds in more appropriate investments.
- Specific Holdings
The following stocks in the portfolio mainly meet my criteria and should continue to sit in the portfolio and can be added to as necessary:
|BANK OF MONTREAL|
|CANADIAN NATIONAL RAILWAY|
|MANULIFE FINANCIAL CORP|
|NATIONAL BANK OF CANADA|
|PEMBINA PIPELINE CORP|
|POTASH CORP OF SASKATCHEWAN|
|ROYAL BANK OF CANADA|
|SHAW COMMUNICATIONS INC|
|SUN LIFE FINANCIAL INC|
|SUNCOR ENERGY INC|
ATCO LTD-CL I NON-VTG
CENOVUS ENERGY INC
MAGNA INTERNATIONAL INC
The following holdings should be flagged for disposal at the appropriate time:
|BANK OF NOVA SCOTIA||NON CUM 2.95% FLT/RT PFD SHS S-19||Preferred|
|BCE INC||CUM RED 1ST PREF SHR SER AD||Preferred|
|ENBRIDGE INC CUMULATIVE||4% RED RT RST PFD SER B||Preferred|
|RIOCAN REAL ESTATE INVT TR||5.25% CUM 5YR RT RESET PFD Ser A||Preferred|
These holdings are to be examined further to determine whether or not to continue to hold: (I would not have placed these in the portfolio)
TECK RESOURCES LIMITED
ISHARES CORE S&P 500 INDEX
|ISHARES 1-5 YR LADDERED||CORP BD INDEX ETF COM UNIT|
Reasons for change
Since my retirement in the summer of 2014 my registered portfolio has eroded at a much higher rate than the general market (TSX). I am now down over 13% since retirement while the market is only down just over 7%. For 2015, my non-registered Canadian portfolio is down less than 3% while my Scotia-managed portfolio is down over 9%. This is not the performance of a conservative retirement portfolio. In addition the losses are almost exclusively in holdings that I would never consider buying in my non-registered portfolio which has been performing quite well by comparison.
This downward trend has not abated and seems to continue month after month with my portfolio dropping more than the rate of the TSX. As I have no ability to replenish these losses in retirement, I must find a way to curtail any future erosion of my portfolio. I don’t expect my portfolio to necessarily meet the market on the upside, but I do expect to be protected on the downside and that is not happening.
Apparently it is going to get easier to open a bank account in Canada while living in another country. I know I did it from Doha in 2011 using HSBC, but the rules got tighter after that and it was almost impossible to open a Canadian bank account if you didn’t live in Canada.
THIS article indicates that the rules are changing and you may be able to open a Canadian bank account from overseas by this summer.
Our friend DP, who is currently travelling in South America, is having some problems with brokerage firms. He uses TD International in Luxembourg, which is my favourite for expats. However, TD is getting more and more picky about country of residence. They have already dropped Turkey and Japan, and DP was just informed that the country he is considering putting down temporary roots, Nicaragua, is not on their approved list. I directed him to Key Trade out of Luxembourg or to TD Ameritrade in the US. Key Trade has said no, but TD Ameritrade says they have no problems with a Canadian expat living in Nicaragua, but not Thailand, where DP has lived in the past. He also got an OK from Interactive Brokers, whom he found friendly, but referred him to the website rather than sending documents by email.
I used to own POT and AGU, the two largest potash companies. When the two companies announced a merger last year, the shares shot up in price and I sold, taking the gains. I want to get back into potash, but not until after the merger and things settle down. The merger has still not taken place, and now I read that there is an additional snag in the merger process: