It’s a trade off. I hold a concentrated portfolio of Canadian stocks. What I give up in greater diversification, I gain in the business strength and potential for the companies that I own to not fail. They have wide moats or exist in an oligopoly situation. For the majority of the Canadian component of our RRSP accounts (for my wife and I) we own companies in the financial, telco, grocers, utility and pipeline space. These are sectors that have historically outperformed. We can call it the Canadian Wide Moat Portfolio. We also hold Canadian oil and gas stocks at a 12-15% weighting. The Canadian contingent then takes a backseat to our U.S. stock portfolios. Always remember to check in on your Canadian home bias.
Like many Canadian investors I discovered over the years that my Canadian stocks that happen to pay very generous dividends were beating the total return performance of the market. You’ll find that market-beating event demonstrated by the Beat The TSX Portfolio. Over longer periods you’ll see that BTSX beat the TSX 60 by over 2% annual. That approach finds value and profitability in addition to business moats. Keep in mind it is the share prices that drive returns, not the dividends. I seek total return as I manage risk.
Eventually, I moved to the wide moat stock portfolio approach.
Big moats under pressure
And as always, past performance does not guarantee future returns. High dividend investors have recently experienced a period of underperformance, as many of these Canadian big dividend payers are rate-sensitive. They were under pressure in a period of rising rates. These high yielders compete with the risk-free yields available with cash, GICs and ultra short term bonds. Debt becomes more expensive putting pressure on balance sheets. Telcos have faced the most pressure due to mounting debt servicing charges and increased competition. Regulators are changing the rules for the sector. The lower yielding grocers did not face those higher rate headwinds.
Related post: Hanging up on my Bell stock.
Rate relief
From the Fall of 2023 rates have started to decline in aggressive fashion. That has provided a tailwind for some of the higher-yielding sectors, namely financials and pipelines. Telcos continue to get crushed.
Bank of Canada has cut rates and estimates call for an aggressive rate cut cycle. This is taking pressure off of rate-sensitive equities. We appear to be back in a lower inflation, disinflationary environment.
Wide Moat 7
For the bulk of my Canadian contingent I hold (held) 7 stocks.
Canadian banking.
Royal Bank of Canada, Toronto-Dominion Bank and Scotiabank.
Telco space.
Bell Canada and Telus.
Pipelines.
Canada’s two big pipelines are Enbridge and TC Energy (formerly TransCanada Pipelines).
Of course, you may (should) choose to hold more wide moat names in the financial, telco, grocer, railways and pipeline/utility space. That is the true Canadian Wide Moat Portfolio. It includes (honourary moat stocks) of Alimentation Couche-Tard, Brookfield and Waste Connections. That has been a superior approach, with much greater returns and less volatility. From the beginning of these Canadian Wide Moat Portfolio updates I have begged readers to choose the wider moat model.
In recent years I paid the price for my concentration risk. While the inflation-friendly Canadian oil and gas stocks and PRA.TO picked up some of the slack, I’ve experienced some underperformance.
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For the U.S. component there is a basket of U.S. stocks. Here’s a report of our U.S. stock portfolio on Seeking Alpha. And here’s the key chart. I will be updating the performance within a week or two.
Our U.S. portfolio has a nice long term beat, but the gap is closing as it has been more than difficult to keep up with the tech-heavy S&P over the last 2 years. Those U.S. market returns are largely driven by the Magnificent 7.
I look for stability (during any recession or major market correction) from the Canadian equity component, while many of the U.S. stocks provide the growth kicker.
Canadian Wide Moat 7 to the end of May 2025
Here’s the total return chart from Portfolio Visualizer. The out performance disappeared in 2022, thanks to the rising rate environment and the collapse of the telco sector. Telco normally being a utility safe haven.
I reported when I sold my BCE stock and then cut my Telus in half. That was my first divergence from very passive stock investing in over a decade. But, the world changed for the Canadian telco sector.
Go for the greater moats
I got caught in some portfolio concentration risk, in which I was fully aware. That’s why I always urged readers to consider a portfolio with more holdings, more moats. Think of it as the wider moat, or full moat portfolio.
There is a solid beat of 1.25% annual, with less volatility and less draw down.
Here’s how I weighted the stocks for the above performance comparison. You could also choose to include more traditional utilities by way of a XUT-T, or ZUT-T. For the grocers you could sub in the wonderful Canadian consumer staples XST-T.
And here’s the performance of the assets.
I’ve long observed that the Canadian Wide Moat Portfolio tracks quite closely to the BMO Low Volatility ZLB-T. So, let’s run a comparison.
The wide moat outperforms but that is due to the early performance. Over the last 5 years, the returns are essentially the same. From 2020, when the world changed with the first modern day pandemic, followed by the inflationary burst, the wide moats offered a slight advantage.
Another wide moat portfolio option
In my wife’s spousal Canadian RRSP, she was invested in the Vanguard High Dividend VDY-T. The ETF served its purpose outperforming the TSX by over 1% annual during its ‘term’. That ETF is financials-heavy to say the least.
This post offers more on the rationale – Selling VDY to build a stock portfolio. You’ll read that the basic premise was to save on ETF fees and to build greater diversification and lower risk to become more retirement-ready. It’s VDY with a wide moat slant.
My wife will likely retire within the next 2-3 years.
Here’s the holdings. You can see that the portfolio holds 4 Canadian banks, plus 2 other financials in the insurance space, and a more diversified financial in Power. One could certainly own the greater financial space by way of XFN-T. I started to build a position in XFN in my own RRSP over a year ago, undoing some of my concentration bias. In Joan’s portfolio XST-T is used to cover the grocers and staples space.
And the short term performance from June 0f 2023:
While lagging the almost two-year term evaluation, the portfolio has offered a slight outperformance over the last year and in 2025 during the Trump tariff tantrum. Also, and most importantly, the portfolio has performed with much less volatility and drawdowns. I’d appreciate a portfolio that outperforms with lower volatility (and I hope that happens over time), but the main goal would be to delivery strong equity returns with lower volatility.
The oil and gas bolt on
The portfolio also holds the Big Canadian 4 for oil and gas. Back in October of 2020 I suggested that readers take a look at investing in Canadian oil and gas stocks. The timing was good as the sectors did turn out to be cash flow rich, and that continues today.
I put that bucket in the inflation fighting camp. The group had a nice run from the start of this wide moat portfolio.
And of course, those energy stocks had a nice week due to the unfortunate events in the Middle East this past week. That spike is not reflected in the above charts that run to the end of May.
For our household there is no risk of a geopolitical energy price shock. We are hedged and would profit from that event. We all hope for peace over profits. But hedge, we will. Always.
Defensive equities working with bonds and cash
Joan’s portfolio also holds 10% in cash (CBIL-T) and 10% in bonds (XBB-T). That offers the potential to lower volatility even more, and it has. My personal approach is to use defensive equities so that we can use less bonds. We see greater returns and less risk compared to iShares XBAL-T, one of the wonderful Canadian asset allocation ETFs.
Greater returns with less risk. That will help enable a more prosperous retirement, with portfolios that can deliver greater and more durable income. Of course, past performance does not guarantee future returns.
And of course, the above is not advice. Consider it ideas for consideration as you build the portfolio that suits your financial plan and risk tolerance.
A ‘longer term’ look at low volatility
ZLB is a Canadian stock portfolio model that is hard to beat. Take a look at BMO’s Low Volatiliy ETF – ZLB. From that post …
More on telcos
Canadian investors will know that the telcos have been getting hit hard. They do not like the higher rate environment. Plus, the regulatory environment has changed and there’s not enough growth to pick up the slack. It is now a no-growth to low-growth sector.
In early 2025 I suggested that there might be solid value in the beaten up telco sector. I have a suspicion that the sector will make the adjustments necessary to become a very slow growth but reliable (modern) utility holding. They will continue to cut staff, cut capital expenditures, sell assets and will get some help from a lower rate environment. They can be very free cash flow and dividend / share buy back friendly.
For 2025 to the end of May …
Observations and takeaways
Dividend paying blue chip stocks have benefited from the low inflation and disinflationary period that began in 1981. With bond yields falling for the most part, investors enjoyed very good returns from bonds and big dividend payers. Given that stocks and bonds perform well in a disinflationary environment, balanced portfolios have delivered very good returns for many decades.
It’s possible that the inflationary shock is behind us. Rates are coming down and perhaps we return to the environment we’ve mostly known from 1981. That would be my guess. But of course there is always the risk of an inflationary shock.
Wide moat stocks as bond proxies
Many Canadian retirees will use the banks, telco’s, pipelines, grocers and utilities as bond proxies to work in concert with a cash and bond allocation. As a semi-retiree I am in that camp.
Our U.S. consumer staples and healthcare stocks also help to build that defensive wall.
Defensive sectors for retirement.
As that post demonstrates, there’s nothing better than defensive sectors and wide moats.
Retirement Club
At Retirement Club, we’ll have our sixth Zoom presentation this week. And Zoom three for Retirment Club Group Two. Thanks for the wonderful response and positive feedback. The Club consists of monthly Zoom calls / monthly newsletters, plus a secure and private online community space. It’s our private island where we learn, share and chat. A key component is learning how to use the retirement cash flow calculators.
You can sign up for the waitlist, we’ll start another trip, Retirement Club Three in 2026. Use the Contact Form to contact me (Dale) and I will send you the outline and put you on the waitlist.
Together, we’ll make sure we do retirement right.
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