In my wife’s Canadian RRSP account (personal) she held the Vanguard Canadian High Dividend ETF – ticker VDY. It certainly was not held for the big dividends but for the potential of those big dividend sectors to provide some total return outperformance vs the TSX Composite. Held from early 2013, VDY beat the TSX (XIC.TO) by about 1% annual. Good enough, we’ll take it. Given the larger position, the fees were starting to add up, the MER is 0.22% meaning that every $100,000 creates $220 in fees each year. It was time to move to a stock portfolio. I created a VDY+ Plus Portfolio. It holds the core VDY sectors plus a Canadian Wide Moat slant. We’re selling VDY on the Sunday Reads.
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About a year ago, I sold the VDY holding and skimmed enough of the individual stocks to recreate the index. I then added a Canadian Wide Moat slant. Then, throw in more exposure to the Canadian oil and gas stocks – that’s where they keep the outrageous free cash flow in Canada.
I posted the returns on Twitter / X.
The VDY Plus Portfolio returns
Here’s the one year returns to the end of June, vs the TSX Composite and VDY.
And of course, you want to know – what’s in the portfolio?
It’s the Canadian usual suspects, of financials, telcos and pipelines. The Consumer Staples ETF – XST covers the grocers and food space to offer another low volatiliy wide moat sector. That is a wonderful add on for Canadian portfolios that are concentrated in the traditional ‘big dividend’ sectors. XST has greatly outperformed the market with much less volatility. It hits the spot for retirees and near retireees, and well just about anyone building a Canadian stock portfolio.
At Million Dollar Journey, I updated – Investing in Canadian Retail Stocks.
Last week, Canadian stocks hit an all-time high. They softened a bit this week, though VDY was up 0.54% as the rotation to value continues.
Energy? That’s a big 4
I then added Canadian oil and gas stocks, using the big four of CNQ, SU, IMO and TOU. A history of beating the energy index with much less volatility. Notice a theme here?
The oil and gas stocks were the main driver of the outperformance for VDY Plus.
While it’s only a short but encouraging test, what I like most about the portfolio is the much lesser volatility / draw down compared to the TSX. That’s crazy good. My wife is in the retirement risk zone, she will likely retire in about 3 years. To manage risk the portfolio also holds bonds at a near 20% weighting.
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It’s likely that all of the income from the portfolio plus new monies will be added to XST given that retirement portfolio success comes down to total return and risk level. It’s hard to beat consumer staples for low volatility. Check out –
The defensive sectors for retirement.
Yes, it’s true that that dividends ‘don’t matter’. A dividend is simply a removal of value from a stock or ETF. You can do the same with a share sale. They are equal except for tax treatment. When we understand that fact, we are free to use and create income from lower yielding low volatility sectors.
I will continue to track this portfolio on Cut The Crap Investing.
As always, keep greater diversification in mind and avoid that Canadian home bias.
What is the cost of your Canadian home bias?
More Sunday Reads
Here’s Dividend Hawk’s take on the week.
And just for fun, Morningstar asks – Is there a recession on the radar in Canada?
National Bank’s reading is more pessimistic than the consensus. “Like the consensus,” Ducharme adds, “we see growth continue at 2.3% to the end of 2024 in the U.S. and at 0.7% in Canada, while in 2025 it will drop to 1% in the U.S., but inch up to 1.2% in Canada. So, no recession on the horizon, but a strong slowdown.
Meanwhile, in the U.S. –
And here’s more interesting ‘stuff’ from Isabelnet. What happened to U.S. stocks after the first rate cut, historically …
Retirement – six years later
From Fritz at The Retirement Manifesto 6 lessons from 6 years of retirement.
- Retirement Is Complex
- Retirement Changes With Time
- Your Retirement Will Be Different Than You Expect
- Your Priorities Will Change Throughout Retirement
- Mindset Matters (A Lot)
- Retirement Can Be The Best Years of Your Life (But It’s Up To You)
At Tawcan Bob wonders if his RRSP should be filled with QQQ.
Here’s my take on that, and how I responded to Bob on Twitter and on his blog …
Interesting post and notion Bob. Given that you’re already in the retirement risk zone, I’d suggest you should be going the other way – protecting your assets for spending – and that includes share harvesting. Perhaps the TFSA would be an area to go for growth on a steroids bet, given that the account might not be touched for a decade or two, or three?
Top Canadian telcos
From Dan at Stocktrades, the top telcos in Canada. As we all know, that sector has been hammered. But it is battling back. I added Quebecor in the VDY Plus Portfolio due to that Freedom Mobile offering that could continue to clip away at the big bad telcos. Dan added …
Quebecor also boasts the sector’s best balance sheet, a steady history of increasing earnings, and a lower dividend payout ratio than many of its peers. This makes Quebecor’s dividend — which is currently yielding just under 4% — arguably the safest dividend in the sector.
On Findependence Hub, the benefits of geographic diversification. I would disagree with the Canadian home bias and dividend focus, but have a read. On this blog I’ve suggested an overweight to U.S., on to Canada and then International.
At Banker on Wheels you’ll find a look at commodities over time, and during various inflation levels. They can be a drag during low inflation periods and a great plus during higher inflation, especially when we experience robust runaway inflation – see the COVID inflationary burst.
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which bond etf(s) do you hold in wife portfolio? ie short,mid or long duration?
Hi Mike. We use ultra short UBIL.TO and then the market XBB.T0
CBIL.TO is cash-like, XBB has enough duration to offer some protection in a stock market correction. Longer duration will go up in price as the stock market get hit and rates are cut to reverse any recession.
Follow the same strategy in U.S. accounts with U.S. ETFs of course. There’s some long TLT still hanging about in there as well.
Dale
Hi Dale,
I’ve been building our own Canadian conglomerate in the taxable account using individual dividend paying companies for the last twenty one years. It hasn’t been that difficult. Being a contrarian investor helps. I’m a fan of David Dreman. A lot of what you have, we have too.
Nineteenth year into retirement too and that’s been the best part of my life. Nobody tells me what to do anymore. Most years our supplemental income goes up faster than inflation, and that’s all I care about.
We reserve the TFSA’s and RRIF’s for one global ETF each.