The performance of the ETF model portfolios.

Today we’ll check in on the performance of the ETF model portfolios. 2020 has delivered the first modern day pandemic. The economy and the stock markets took a hit. US stock markets fell by 34% into March, Canadian markets fell by 37%, while International developed markets fell by 29%. All ‘drops’ are calculated by way of ETFs in Canadian dollar offerings. And yet, here we are in December of 2020, with the balanced portfolios at all-time highs.

We know now that SARS-CoV-2 was a heavy hitter with respect to taking down stock markets. But the recovery has also been nothing but spectacular. Here’s a look at past outbreaks and the markets.

If we use March as a ‘start date’ for the pandemic, the S&P 500 has set a record for pandemic performance. For a 6-month period from March to end of August, US stocks are up 19.7%. We have experienced the most severe health crisis, along with the greatest stock returns.

The best thing to happen to stock markets?

It is nothing short of incredible that we have the great disconnect between the economy and the stock markets. Of course we can thank record-breaking government stimulus that dwarfs the financial crisis.

Excuse the ‘grainy’ image, but what you have is blue circles for Financial Crisis stimulus levels and the red circles for the COVID stimulus (so far, and still growing).

You might also throw in record low interest rates as a source of stock market fuel.

The stock markets are certainly forward thinking. And they might be looking out to late 2021 and into 2022. Hopefully with the good news on the vaccine front, we can get to the other side of the pandemic within a year or two. And of course, the health considerations certainly trump the importance of our portfolios.

It is hard to imagine that it has already been ten months since COVID-19 and the pandemic began to consume our thoughts and energy.

I first wrote about the global pandemic on February 1 of 2020 with how to prepare your portfolio for the coronavirus outbreak. At that time, the term COVID-19 was not in use. These were early days when the cases were just arriving in North America. That said, I certainly can’t claim that I knew that we would have a global pandemic on this mass scale.

Always be prepared.

It was another opportunity to remind readers of the risks that are always waiting around the corner. We should always be prepared for the unknowns. They can take many shapes and names. The first paragraph from that post …

Off the top I’d have to state that you should have already been prepared for the coronavirus. You should have been prepared in 2020. You should have been prepared in 2010 when the current bull market found its legs. Investors should always be prepared for the next big one. Once again, it’s time to do a gut check. Are you investing within your risk tolerance level? If you need to take steps, we’ll look at what you can do to prepare your portfolio for the recent coronavirus outbreak.

As our friends are Mawer Investments remind us – you don’t fix a ship in a hurricane.

In that post I had suggested the basics of sensible asset allocation and diversification across stocks and bonds and various geographies. I had also offered up that disaster insurance known as gold. On the bond side I had offered up US long term treasuries. Those treasuries are known to be the best risk managers in the bond world.

US treasuries are up 20% in 2020.

Gold is up 16.7% in 2020, in US dollars. Gold stocks increased by some 56% at the peak in 2020. That gold stock ETF from iShares is up 19% in 2020, to date.

Core asset returns in 2020.

Here are the core asset returns for 2020. I will use the iShares ETF offerings that you’ll find on the ETF Model Portfolio page, to Friday November 27. All assets are in positive territory year to date.

• Canadian Stocks TSX 60 XIU + 4.0%
• US Total Market Stocks XUU + 13.7%
• International Developed Market Stocks XEF + 3.2%
• Core Canadian Bonds XBB + 8.2%

Portfolio returns are estimated year to date. Portfolios are sorted with by way of the bond to stock ratio. The first portfolio is 40% bonds and 60% stocks. The portfolios are rebalanced quarterly.

See the ETF Model Portfolio page for geographic weightings.

Source: Portfolio Visualizer and BlackRock iShares. The figures are for annual returns, CAGR – Compound Annual Growth Rate.

Balanced Income 40/60	8.9%
Balanced 60/40	10.0%
Balanced Growth 75/25	10.6%
Equity Growth 100	10.1%

Here’s the returns history from January of 2016 to the end of November 2020.

Full (period) is January 2016 to end of November 2020 .

Portfolio	1-year	3-year	Full
Balanced Income 40/60	7.9%	6.2%	6.3%
Balanced 60/40	8.1%	6.9%	7.6%
Balanced Growth 75/25	7.9%	7.3%	8.6%
Equity Growth 100	8.0%	7.9%	9.8%

We’ve had quite the short term pop as I noted in my latest column for MoneySense. The Dow cracked 30,000 this week on ‘vaccine optimism’.

Greater diversification.

Keep in mind that over the last several years (and well forever) an investor would have better risk adjusted returns with the addition of gold and precious metals and those US treasuries. Of course, bitcoin has been the best producing asset in 2020 and for many years. I’ve accumulated a modest position in bitcoin in 2020. IMHO bitcoin is well on its way to becoming a widely accepted and embraced portfolio asset.

I hold gold price and gold stock ETFs. I also hold those US long term treasuries, in concert with a core Canadian universe bond ETF.

Here’s a Balanced Portfolio with the addition of Gold ‘stuff’ and US Treasuries.

Portfolio	1-year	3-year	Full
Balanced 60/40	8.1%	6.9%	7.6%
Balanced Gold/Treasuries	11.2%	8.8%	9.7%

Here’s the assets for Balanced Portfolio with Gold and Treasuries. The Treasuries ETF is not adjusted for currency in the above portfolio calculations. TLT is a US dollar ETF.

Weekend Reads.

Mark Seed will tick many of the boxes with his Weekend Reads. You find links to Rob at Passive Canadian Income, Bob Lau on Tawcan and this link, as well – Mike The Dividend Guy takes a look at one of my stocks – Enbridge. Great video …

When I made sense of the markets this week on MoneySense I found some fascinating stuff. A strategy of holding the top ten stocks on the S&P 500 just crushed the market over the last 10 years.

Also on MoneySense, Larry Bates of Beat The Bank takes us through switching from mutual funds to ETFs.

Related post: Don’t give away half of your investments – Beat the bank.

And you can check out the new look on Million Dollar Journey. That’s a great re-design on one of Canada’s most read blogs. I do some moonlighting on Million Dollar Journey, here’s my latest – investing in Canadian Railway Stocks. Those rails are in that exclusive wide moat grouping for Canada.

This post on Canadian vs US stock markets offered a wonderful chart that demonstrates how those stock markets complement each other, sector by sector.

On findependence hub Jonathan Chevreau looks at how the pandemic is impacting Canadian’s mental health and finances.

Enoch offers a nice overview of bonds on Savvy New Canadians.

On stocktrades.ca, Dan has a look at his favourite utility stocks.

And on retirement, delaying CPP is often the most advantageous move you can make to boost retirement income and reduce risks. But your advisor may not ‘be down’ with that.

Related post: The 3 most common mistakes of Canadian investors.

And BMO’s Brian Belski on the new 10 year bull market run. It’s coming …

Partnership links.

While I do not accept monies for feature blog posts please click here on the mission and ‘how I might get paid’ disclosures. Affiliate partnerships help me pay the bills for this site. That will allow me to keep this site free of ads, and hence, easy to read.

Check out EQ Bank for those who want to make their cash work a lot harder. The current high interest savings account rate is 1.5%. EQ Bank recently introduced RRSP and TFSA accounts with a rate of 2.3%.

I also have partnerships with several of the leading Canadian Robo Advisors such as Justwealth, BMO Smartfolio and Wealthsimple.

Cut The Crap Investing readers can sign up with Questrade (Canada’s top-ranked discount brokerage) through this partnership link. You can buy ETFs for free.

With thanks,

Dale