Hanging up on half of my Bell stock on the Sunday Reads.

Goodbye Bell. You can’t hurt me anymore. In my first major sell in about a decade I greatly trimmed by position in Bell (BCE). I am a buy and hold investor. I am more passive than a passive index. But when an investment thesis changes, I’ll make a change. The rules changed for Bell and Canadian Telecom. Higher interest rates piled on. I sold over half of my position in Bell and moved the proceeds to a Canadian Dollar U.S. equity ETF. We’re doing some portfolio reshaping on the Sunday Reads.

About two weeks ago, I hit the sell Bell button. There’s nothing a Bell stock retention call centre associate could have done to change my mind. 😉

In order to keep the funds in the Canadian account I moved the proceeds to iShares Quality Dividend ETF – ticker XDU on the TSX. That’s a Canadian Dollar ETF, so I will suffer the loss of withholding taxes on the modest U.S. dividends. But that is a minor event. And I already have a generous U.S. stock portfolio in the RRSP. That market-beating U.S. stock portfolio provides a growth kicker in concert with some defensive stocks such as Walmart (WMT), Pepsi (PEP), Johnson & Johnson (JNJ) and CVS Health (CVS).

Buy ETFs for free at Questrade

XDU combines quality with very solid valuation. I like the sector arrangement as well with generous weightings to consumer staples, healthcare and energy. The ETF has underperformed the growth heavy S&P 500, but the returns have been very solid.

If value ever comes back in style, that index might go back to outperforming. That’s the longer term trend of the index, a timeline that begins well before the ETF launch. But I’m not worried about any outperformance or underperformance for this modest holding. I simply reduced Bell to a position where it can’t hurt my portfolio. And I increased my U.S. exposure. All said, this is a very modest portfolio move.

I have kept my full position in Telus and my other Canadian wide moat stocks. Over the years, I’ve begged readers to consider the wider, or more moats portfolio that includes the grocers and railways, and honourary moat picks such as Couche-Tard, Brookfield and Waste Connections.

Being in semi-retirement, I’m still content to use Canadian moat stocks as a defensive core (in concert with bonds), while the U.S. handles more of the growth potential. But of course I need the moat stocks to deliver on the total return front over the next decade or two. In the end our retirement portfolio success comes down to total return and risk level. That’s it.

And I am fortunate to have the Canadian oil and gas stocks and bitcoin picking up some of the slack. The oil and gas stocks (and pipelines, potentially) also offer a solid inflation hedge. That said, I am witnessing the effects of concentration risk in my core Canadian holdings.

Fix that Canadian home bias

The Canadian home bias appears to be the most common Canadian investor ‘mistake’. When do you fix a hole? Now. Do you have to fix it all at once? Of course not. But I’ll leave that up to you. I still like the idea of Canadian stocks working in concert with U.S. stocks and a sprinkling of other international.

And some feel that Canadians stocks will recover. From the Globe & Mail …

There’s attractive valuation in Canada, while the U.S. is the global growth engine, but with a stock market that is certainly expensive by historical standards. I pay attention to valuation, but you can’t argue with the growth-hungry S&P 500.

Our returns and portfolio volatility are mostly determined by our basic asset allocation. I recently updated the returns for the core Canadian ETF Portfolios. They are global, but use Canadian Dollar ETFs. That post will help you understand the asset allocation framework. Those portfolios also clearly demonstrate the benefits of passive investing with a diversifed mix.

Canadian CDRs falling behind?

And here’s an interesting bit of digging on CDRs courtesy of John Heinzl at the Globe & Mail. There can be some significant underperformance due to currency hedging, fees and general inefficiency of the mechanisms …

Continuing with Nvidia, for the two years ended March 31, the CDRs posted a gain of 215.5 per cent. That’s a fabulous return, but it’s well short of the 231.1-per-cent gain for Nvidia’s U.S.-listed shares over the same period.

Other CDRs – CIBC World Markets offers more than 50 of them – have also underperformed their U.S.-listed counterparts. Amazon.com’s CDRs, for example, gained 5.9 per cent over the same two-year period, compared with 10.7 per cent for the U.S.-listed shares. Microsoft CDRs rose 32.1 per cent, compared with 36.5 per cent for the shares.

In those examples it would have been more beneficial to pay the currency conversion charges (if your investment amount was significant enough) compared to buying the CDRs. And all said, most experts will suggest one of the main benefits of holding U.S. stocks is gaining that currency exposure.

Canadian Depositary Receipts explained.

CDRs can be beneficial in allowing you to buy U.S. stocks in small amounts. But ensure you understand the potential to underperform. Of course they could possibly outperform if the Canadian Dollar were to strengthen against the U.S. Dollar.

Canada’s Federal Budget 2024

Canada’s latest federal budget includes a spending bonanza, and continued $40 billion or more annual deficits (with no plan to balance the budget). Add in greater pressure on Canada’s falling productivity.

2023 set a record for capital leaving Canadian markets. This budget will not help that trend.

The President of Canadian tech darling Shopify Tweeted …

We need to be doing everything we can to turn Canada into the best place for entrepreneurs to build 🇨🇦

What's proposed in the federal budget will do the complete opposite. Innovators and entrepreneurs will suffer and their success will be penalized — this is not a wealth tax,…

— Harley Finkelstein (@harleyf) April 17, 2024

On Findependence Hub, Jonathan Chevreau offers a solid budget outline. The biggest item is an increase in the captial gains inclusion rate from 50% to 66.7% on amounts above $250,000. Entrapped in this snare are family cottages that are being passed from generation to generation. Also Canadians who chose real estate as their wealth creator will face increased taxes on sales. You have until June 25th if you’re looking to sell or transfer a property at the 50% cap gains rate.

Here’s a very good post at MoneySense that explains the capital gains tax in Canada.

Of course, family and small businesses will also face these increased taxes. Over 300,000 Canadian businesses paid some form of captial gains in 2023.

You’ll find more on Canada’s productivity decline, and the budget on Kyle Prevost’s Making Sense of the Markets for MoneySense. There’s also an outline on the very solid quarterly reports from many of the big U.S. banks. It appears they all beat on the earnings front.

Salary vs dividends for business owners?

With more on the personal business front, Million Dollar Journey took at look at salary vs dividends for small business owners. That’s a deep dive and worth a read if you’ve incorporated. And of course given the many complexities, it may make sense to contact an advice-only planner.

And that inverted yield curve is still foolin’ everyone.

The yield curve has been inverted for over 500 days

We’ve only seen this 3 times in history:

1. 2008
2. 1929
3. 1974

All 3 saw > 50% stock market drawdowns

We expect a final rally to occur before recessionary concerns really kick in later in 2024 pic.twitter.com/hynXm6wt7Q

— Game of Trades (@GameofTrades_) April 19, 2024

Is this just a delay of the inevitable, or is this an outlier? Nobody knows the future. That’s why we ignore the economic prognosticators (and signals) and stick to our investment plan like glue. And always make sure that you are investing within your risk tolerance level, and that your portfolio matches the master plan.

More Sunday Reads

We’ll start at Banker on Wheels that delivers the posts and podcasts of the week. You’ll find some good portfolio (asset allocation) stuff including this post from Vanguard. They will suggest that you keep valuation in mind.

With stretched valuations and a slowdown in earnings growth, we’re forecasting annualized returns of 3.7%–5.7% in the U.S. equity market over the next decade. Investors should be cautious with U.S. equities, considering the expensive valuations and lower expected growth. By comparison, we anticipate returns of 6.9%–8.9% annualized over the next decade for international equities.

Vanguard

Also, a short history of stocks and how indexing came to rule …

It is not a coincidence that following the GFC, Vanguard and Blackrock soon crossed a trillion dollars in assets, then doubled in size, then doubled again. The patsies at the table soon figured out they did not want to play Wall Street’s games. Their solution was to own the market, and let someone else pay a high management fee.

Related post – what is index investing?

BOW has also launched a compound interest calculator, check it out. Know how much you need to invest to reach your goals and your magic retirement number? You’ll also find a nod to gold (that is having an incredible run). On this blog I have long put forth the benefits of gold as a portfolio asset.

Here’s the week in review at Dividend Hawk.

Justwealth performance update

Canada’s top Robo Advisor, Justwealth, has updated their portfolio performance page .

Here’s my review of Justwealth.

Justwealth is a great spot to invest in the RESP as well. The target date funds adjust the risk level as the student approaches the education start date.

Stocktrades takes a look at Canadian dividend growth stocks. That will provide a total return focus. More on that ..

A dividend rate and history is 95% sign – it's a divining rod that can help you find certain factors.

But the physical dividend is largely irrelevant. The underlying profitability and growth will drive your returns, not the dividend. https://t.co/hBmFO3szAU

— CutTheCrapInvesting (@67Dodge) April 19, 2024

The cure for gas pains …

Hopefully, you have your gas paid from by your oil and gas stocks. Typically, the higher the price goes, the more we make aka profits and dividends that greatly eclipse the amount paid at the pumps. https://t.co/wBoSd9ObiM

— CutTheCrapInvesting (@67Dodge) April 18, 2024

Thanks for reading and sharing the Sunday Reads. Last week’s post framed the mission for this blog – Don’t pay total fees that eclipse your portfolio’s peak value. Share that message with friends and family who might be ‘trapped’ in high fee mutual funds.

You can follow this blog, enter your email address in the subscribe area. Feel free to reach out. Click on Contact Dale near the top of this page.

Cut fees – cut the crap

Earn a break on fees by way of many of these partnership links.

CANADA’S TOP-RANKED DISCOUNT BROKERAGE

Cut the Crap Investing readers can earn a break on fees at Questrade by way of that partnership link. At Questrade, you can buy ETFs for free. It is a good place to build your stock portfolio as well.

Advice, planning and low-cost portfolios

Here’s Canada’s top-performing Robo Advisor, Justwealth. You can get advice, planning and l0w-fee ETF portfolios all at one shop. You can have it all.

Consider Justwealth for RESP accounts. That is THE option in Canada with target date funds that adjust the risk level as the student approaches the College or University start date.

OUR SAVINGS ACCOUNTS

Make your cash work a lot harder at EQ Bank. RRSP and TFSA account savings rates are at 2.5% and 3.0%. You’ll find some higher rates on GICs up to 5.2%. They also offer U.S. dollar accounts. We use EQ Bank, they have been awesome.

OUR CASHBACK CREDIT CARD

We make between $40 to $70 every month! And that’s on everyday spending. There are no fees with …

The Tangerine Cash Back Credit Card

For March we received $80 in cash back. There was a boost thanks to my trip to Florida. I invest my cash back in a TFSA account at Wealthsimple.

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 (try to) pay the bills for this site. But they don’t, ha. That will allow me to keep this site free of ads and easy to read.