RM Portfolios Update: July 2018

Welcome to the July update for the different portfolios which I track here at The Rich Moose blog. I use Canadian-listed ETFs for the models I share to keep the tracking, purchasing, and selling easy for Canadian readers. However, because they are not available in Canada, I use U.S.-listed ETFs and track returns in U.S. dollars for the Leveraged Barbell Portfolios which use 3x Leveraged ETFs.

See the list of my favourite Canadian ETFs on this page.

Vanguard All-in-One Portfolio ETFs

These Vanguard ETFs hold multiple assets inside a single ETF. It's nearly a perfect solution for investors who want to buy just one ETF and hold it forever without worrying about re-balancing, tax trigger issues, and excessive costs. Read my post reviewing these products to get an idea of how they are designed.

While I personally believe there are better ways to invest when you have a larger investment account, these Vanguard Portfolio ETFs are great for newer investors, people who don't want to spend any time thinking about their investing process, and investors who want to minimize costs that would otherwise use a "robo" advisor or a similar more expensive passive investment approach.

Here are the July monthly & year-to-date returns of these portfolio products (benchmark data).

Vanguard Growth ETF
July:  +1.17%
YTD:  +4.49%

Vanguard Balanced ETF
July:  +0.76%
YTD:  +3.32%

Vanguard Conservative ETF
July:  +0.35%
YTD:  +2.15%

The decision between choosing the Growth ETF, Balanced ETF, or Conservative ETF depends on your tolerance for risk and your investment time-line. The Growth ETF should have the highest returns and highest draw-downs over time while the Conservative ETF will show lower returns with more stability. The Balanced ETF is a middle-of-the-road option.

Averaged 6 & 12 Month Dual Momentum Strategy

Dual Momentum is a strict, rules-based investing approach which uses an easy performance evaluation to decide your investment holding for each month. Most months the holding will stay the same; trades occur around two times per year on average. By evaluating just once each month, you can eliminate the negative effects of market noise and spend very little time managing your investments.

I use a very similar version of Dual Momentum in my own personal portfolio. Looking at the history, I think Dual Momentum investors have a good opportunity to have market beating performance with lower drawdowns.

The Dual Momentum strategy—as tested by Gary Antonacci of Optimal Momentum—has shown fantastic results over complete market cycles. Read his website, book, and research papers to get a full understanding of how the strategy works.

See how Averaged 6 & 12 Month Dual Momentum would have performed compared to a buy-and-hold indexing portfolio over the past 5 decades, see the portfolio performance by visiting the Portfolios page.

This month we are staying in U.S. stocks which are very clearly outperforming the rest of the world right now.

YTD Performance:  +4.76%
Last month's performance:  +2.40%
Current recommendation:  XUU.TO

When determining our monthly position, we consider the past performance of just three eligible holdings: XUU.TO, XEF.TO, VSB.TO. The best performer based on specific criteria becomes the only holding for the next month.

Leveraged Barbell Portfolios

The Leveraged Portfolio strategy uses a unique mix of short-term bonds and leveraged stock ETFs to achieve growth while limiting downside risks. It's essentially a barbell strategy where all the risk and growth is contained in a small portion of the entire portfolio.

Although I add a trend factor into the analysis for my personal portfolio, the strategy I use in my non-registered account works very similar to this Leveraged Barbell Portfolio.

If you choose to implement the strategy, make sure you treat each account as a whole portfolio. Do not put bonds in one account and leveraged stock ETFs in another account!

Leveraged portfolios are re-balanced just once per year. For this reason, I will always track the Year-to-Date returns only.

Canadian-listed ETFs (2x Leverage Stock ETFs)

HSU.TO (50%) & XSB.TO (50%):  +4.28%
HSU.TO (30%) & XSB.TO (70%):  +2.70%

U.S.-listed ETFs (3x Leverage Stock ETFs)

UPRO (40%) & BSV (60%):  +4.43%
UPRO (30%) & BSV (70%):  +3.25%

These allocations are just a few examples of how Leveraged Portfolios can work. Leveraged ETFs amplify positive and negative returns so they should always be paired with low-risk assets to meet your personal risk tolerance. In a non-registered account, you may use margin debt to purchase your stock index ETF for somewhat better tracking.

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Net Worth Update: July 2018

Monthly Summary

I can hardly believe we're already more than halfway through 2018! For a chunk of this past month and well into August I'm on vacation; the longest vacation I've ever had which is pretty amazing. I feel a little like the Europeans interviewed in Michael Moore's Where to Invade Next comedy documentary film.

We have seen some pretty cool action in the tech stocks this month. Thanks to a roughly 30% exposure to the NASDAQ 100 which I've held for quite a while now, I was able to benefit from the new highs being hit over and over. But then, near the end of the month, we saw Facebook getting walloped with a 20% drop in a single after-market trading session.

It's a little strange that a relatively minor disappointing result for one earnings quarter can see a $130,000,000,000 readjustment in valuation for one company. In my view, what more proof do you need that markets are not always efficient.

Maybe the most interesting part is that the valuation readjustment stuck and is still declining. Often we see at least a partial rebound after an enormous, fast drop like that. Other direct-to-consumer tech names like Twitter, Tesla, Netflix, Baidu, and a few of the others also had a downside adjustment. These were real stock market favourites, so it will be interesting to see where things go from here in a segment that has been a major U.S. stock market mover.

More positively, we have seen a small bump upwards this past month in all the major market segments. The U.S. indices, Developed International, and Emerging Market equities saw small increases which may indicate further strength down the road. There seems to be a fair amount of fuel in the markets with the tax cuts, corporate buybacks, record earnings, and other positive fundamental indicators.

However, by my technical metrics both Developed International and Emerging Markets are still in a downtrend. For this reason, I don't have any allocation to these equity categories. But if the rebound continues I will definitely dip a toe in and see where it goes.

In other updates, I took a small short position on oil in July. I don't predict oil will go down, but my technical markers told me to take a short position. It's a roughly 5% exposure as a percentage of my total portfolio because I am always more cautious on the short side. Naturally there is a close stop loss marker to limit any losses.

As I've mentioned before, I follow two different strategies across my accounts. In our registered accounts I follow a version of Dual Momentum. In our non-registered account I employ a trend strategy with use of leverage.

Our registered accounts are still holding U.S. stocks, as per the Dual Momentum signal. But our remaining portfolio sits mostly in cash, aside from the moderate allocation to the NASDAQ 100 and small allocation short oil.

In June, we finished the month with a total of $677,224 in our investment accounts. That was the first month where we got back over our starting point for the year. This month we saw a moderate investment return of +1.43% on our investments. We also contributed more money to our investment accounts as per our usual practice.

I hope through sharing our real numbers you will be inspired to start saving and investing young—it pays!

The Current Numbers

Here are our current Investment Assets as of the last trading day in July. We invest in TFSAs, RRSPs, and a non-registered joint margin account. We use a version of Dual Momentum and a moving average/breakout trend strategy to determine what we buy and when we sell our ETF positions. I often employ leverage in positions, so our results tend to swing a bit more each way than the underlying indices.

January 1 of the current year is in brackets to help illustrate the change during the current year. Net Worth Change reflects the total increase/decrease of this past month including new contributions.

The Investment Return is the total year-to-date return on our investment positions, corrected for new contributions at the end of the month. Due to the end-of-month adjustment, the true rate of return on a daily adjustment basis would be slightly different dependent on the intra-month return on the new contribution.

Total Investments:  $691,890 ($670,856)
Monthly Net Worth Change:  +$14,666
30x Rule Safe Annual Income:  $23,063  ($22,362)
YTD Investment Return:  -2.84%

Background Story

My wife and I are late-20s professionals working in the public sector. We don't earn enormous salaries, but by keeping our spending under control we save a large portion of our incomes each month. Our Investment Assets are 100% the result of our own hard work and the return on investments; we have not received any gifts or won any lotteries.

While we both work in pension careers, for this purpose we don't include pension values in our net worth nor pension contributions in our savings. Our investment assets and contributions are from our net paycheques.

We invest primarily with index ETFs using a dual strategy portfolio that I personally developed and maintain. To keep our investing costs as low as possible, I use Questrade and Interactive Brokers as my online brokerages. Questrade is my go-to choice for registered accounts. Interactive Brokers offers powerful tools, low commissions, and low margin interest for our joint margin account.

Comments & Questions

All comments are moderated before being posted for public viewing. Please don't send in multiple comments if yours doesn't appear right away. It can take up to 24 hours before comments are posted.

Comments containing links or "trolling" will not be posted. Comments with profane language or those which reveal personal information will be edited by moderator.