RM Portfolios Update: May 2019

Welcome to the May update for the different portfolios which I track here at The Rich Moose blog.

I use Canadian-listed ETFs where possible 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 3x Leveraged ETFs and track returns in U.S. dollars for the Dual Momentum strategy and some of the Leveraged Barbell Portfolios.

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 monthly and past 12-month returns of these portfolio products (NAV data) for May 2019.

Vanguard Growth ETF (VGRO.TO)
May:  -3.48 percent
12-Month:  +2.74 percent

Vanguard Balanced ETF (VBAL.TO)
May:  -2.23 percent
12-Month:  +3.62 percent

Vanguard Conservative ETF (VCNS.TO)
May:  -0.97 percent
12-Month:  +4.48 percent

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.

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 the next month. Most months the holding will stay the same; trades occur fewer than two times per year on average.

By evaluating just once each month, you can reduce the negative effects of market noise and spend very little time managing your investments.

I use 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.

In my model, I evaluate the holding each month based on the 12-month gross performance of the MSCI USA Index, the MSCI ACWI ex-USA Index, and the annualized past return of 3-month U.S. Treasury bills.

Each month I will share the model signal as either U.S Stocks, International Stocks, or Bonds. Read the linked posts to understand the investment options and other questions related to these signals. The signals and returns are calculated in U.S. dollars.

See how the Dual Momentum portfolio would have performed compared to a buy-and-hold index portfolio over the past 5 decades by visiting the Portfolios page.

Index 12 Month Performance: -7.16 percent
Index May Performance: -6.32 percent
Current recommendation:  U.S. Stocks

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%): +10.62 percent
HSU.TO (30%) & XSB.TO (70%): +7.38 percent

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

UPRO (40%) & BSV (60%): +13.18 percent
UPRO (30%) & BSV (70%): +10.59 percent

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.

Comments & Questions

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Net Worth Update: May 2019

Monthly Summary

May 2019 saw a definite shift in sentiment for stocks. The S&P 500 made a new high on the first of the month, but has come down since then. The breakout at the end of April is looking more like a false breakout—barely pushing past the September 2018 high and then falling quite rapidly. In the technical parlance this can be the start of a double top pattern. Normally this is indicative of increased risk for further downside in stocks. Some key areas to watch in the S&P 500 are 2650-2600 and 2400-2350.

In other market categories, U.S. small caps and developed markets are looker weaker every day, emerging markets have totally broken down, Treasury bonds are rallying big time, and even gold is starting to look alive with a push over $1,300 per ounce.

Something very interesting to see right now is the CNN Fear & Greed Index.

Credit: CNN Business

I'm amazed that investor sentiment has shifted so quickly. We are less than 10 percent off all-time highs (on U.S. Large Cap stocks) and investors are on the verge of completely freaking out. To me this is either an indication that investors are extremely fragile or this index is a gross miscalculation of what investors are really thinking.

In May I continued to hold U.S. stocks in our registered accounts as per the Dual Momentum signal. My registered accounts make up a little less than half of our total investment account values while the rest is invested in short-term bonds and a trend strategy which I share weekly.

In my trend investing account I made a number of trades. The market is in the middle of a shift in trend directions.

In April, we finished the month with a total of $738,168 in our investment accounts. If you recall, we had a gain of +3.42 percent that month.

This past month I held off on new contributions. Our portfolio was down quite a bit, a combination of falling markets and leverage with exits on many positions near the end of the month. We saw a negative monthly investment return of -9.78 percent on our portfolio. We are about 12 percent off of our portfolio highs.

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 May. We invest in TFSAs, RRSPs, and a non-registered joint margin account. You can keep track of our total investment assets and returns on the About Daren page.

We use a version of Dual Momentum and a moving average/breakout trend strategy to determine what we buy and when we sell our 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 gross 12-month return on our investment positions, corrected for new contributions at the end of each 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: $666,012  ($745,462)
Monthly Net Worth Change: -$72,156
30x Rule Safe Annual Income: $22,200  ($24,849)
12-Month Investment Return: -6.79 percent

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 one hundred percent 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, LEAPS options, and futures contracts 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 non-registered 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.