I recently looked at the returns for the core ETF Portfolios on Cut The Crap Investing. It was more than a solid year with annual returns in the range of 9.8% to 11.0% for 2020. It was another great year for simple couch potato investing. Simple and cheap worked. Today we’ll look at the returns for the outlier portfolios on Cut The Crap Investing. These portfolios skew to dividends and income.
As a reminder here’s the returns for the core models.
The Greater Growth Portfolio is an outlier of sorts as it goes off script with assets outside of the the core cap-weighted stock ETFs. That said, we’ll keep an eye on that model as it might offer greater value in 2021. It may play a little bit of catch up.
The income and dividend portfolios.
From the ETF Model Portfolio page.
The Greater Income Portfolio
2020 total return, down 1.5%
Portfolio yield estimate 4%
Here’s the overview of The Greater Income ETF Portfolio. At the time of that writing in December of 2018, an investor would have been able to grab an initial yield of near 5%. If one was using that portfolio model to fill an income need it would be mission accomplished. But as you’ll soon see the distributions fell in 2020.
Here’s the portfolio asset total returns for 2020.
- XDIV Canadian Stocks down 7.4%
- XDU US Stocks down 0.75%
- XRE Canadian Real Estate down 13.6%
- XHB Canadian Corporate Bonds up 8.6%
- CPD Canadian Preferred Shares up 1.5%
The distributions.
The XDIV (Canadian Dividends) distribution fell from .097 to 0.939 cents per share. There was a large reinvested dividend in 2019 not repeated in 2020 causing that decrease. The dividend fell by just over 4% in 2020.
XDU (US Dividends) decreased to .695 to .672. As with the Canadian High Dividend ETF there was a reinvested dividend in 2019 that was not repeated in 2020. The dividend fell by 3.4%.
The XRE (Canadian Real Estate) distribution fell from .951 to .723 cents. Once again there was a sizeable year end distribution in 2019 that was not repeated in 2020. And of course, the REIT sector was hard hit in 2019 with work from home and stay at home economy. The distribution fell by 24%.
The XHB (Canadian Corporate Bonds) The distribution fell from .792 cents to .769 or 3%.
CPD (Canadian Preferred Shares) distribution dipped slightly from .618 to .610, a 1.3% drop.
The greater income portfolio for retirement funding?
The portfolio income would have decreased by over 5% in 2020 from 2019 according to portfoliovisualizer.com. The income would be just 1% below the level of 2018. It certainly would have delivered income above a 4.5% spend rate. That is, income that is above 4.5% of the total portfolio value.
Related post: Is there a new normal for the 4% rule?
One might use that type of ETF income basket to give the portfolio a shot of greater income and there is the potential of solid total returns.
On the retirement funding front one might also look to Vanguard’s VRIF ETF. While you may or may not use that as an option, you’ll get some ideas on building a simple total return ETF portfolio that can be used to create income. VRIF will deliver an income increase in 2021 over 2020. That is a popular option due to that convenience factor.
I’d be more of a fan of using a more complete retirement funding model such as what you’d find in the new balanced portfolio.
My retirement funding model.
For my portfolio I created a higher quality but simple stock portfolio and I manage the stock risk. I suffered no dividend cuts in any of the Canadian or US stocks. There were many dividend increases on both sides of the border. Our US stocks delivered near 30% in 2020.
I also hold Canadian and US bonds, gold stocks and ETFs that hold physical gold, plus bitcoin at a 5% weighting, and commodities.
I am looking to protect against a shift in economic regimes. That is, the possibility of greater inflation or deflation or even severe recessions.
On MoneySense I had looked into the electric vehicles market (an undeniable trend). As part of the explore in a core and explore portfolio approach, I’ve initiated a position in that BATT ETF that plays the EV ecosystem.
The Dividend Aristocrat Portfolio
While both dividend aristocrat indices have a history of beating the market, they both underperformed in 2019. Here’s a post on the US and Canadian dividend aristocrats. NOBL is a US dollar fund. That said, the US dollar was relatively flat vs the Canadian dollar in 2020. I’ve made no adjustment for currency.
The Canadian Dividend Aristocrats were down by 2.9%.
The US Dividend Aristocrats were up by 8.3%.
Combined aristocrats were up 2.7% for 2020.
An all stock portfolio is likely only suitable for one who is early in the accumulation stage, with decades to invest.
The Dividend Growth High Yield Portfolio
The dividend growth high yield portfolio was down by 4.1% in 2020.
- XDIV Canadian Stocks down 7.4%
- XDU US Stocks down 0.75%
All said, I still really like that mix. When I look under the hood, I like what I see. The indices both have a (back test) history of beating the market. The index methodology insists on a 5-year dividend growth history, and it also applies financial health screens.
The PE ratios (price to earnings) are more favourable for these two index ETFs. There might be more value hidden within these baskets of dividend payers. Value investing is certainly making a comeback. As always, we should remember that an investment strategy can take several years or a full market cycle (bear / bull / bear) to deliver on the full potential.
The combined dividend yield available today is near 4%.
Stay tuned. We’ll keep score.
You might also enjoy a look at the 2020 returns for the Canadian Dividend ETFs.
And here’s the returns for the one ticket ETFs for 2020.
International diversification.
Most portfolio managers and advisors would suggest that you layer in International diversification by way of developed and developing market funds.
On the dividend front, you can look to the BMO ETF offerings. Check out their Global and Emerging Market section on this link.
Thanks for reading, we’ll see you in the comment section.
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Dale
Hi Dale,
what are your thoughts on RIT or ZRE as ETF options for the REIT portion of a portfolio, or are there others worth a look? also any suggestions of what portion to allot in a portfolio with 30bonds/70 equities for someone in pre-retirement?