RM Portfolios Update: January 2018

Each month I share the monthly performance of the Passive Portfolio and Dual Momentum Strategy. I also share the Dual Momentum pick for the current month based on my relative and absolute momentum criteria using my favourite Canadian-listed ETFs.

I will no longer be tracking a regular Canadian Couch Potato-esque portfolios. There are two reasons for this:

  1. Pretty much every Canadian finance blog alludes to the ongoing performance of this type of strategy; while there's nothing wrong with being a Spud, at The Rich Moose Blog we intend to be different; and
  2. Thanks to some awesome new ETFs from Vanguard, there is no longer any benefit to running your own balanced strategy using multiple ETFs! (Blog post coming on this.)

If you still believe in running your own passive ETF portfolio using individual ETFs, you can learn how to design a Couch Potato portfolio by reading this post or the Canadian Couch Potato blog.

Instead, on The Rich Moose Blog, we're going to turn up the heat while protecting the downside risks! We're going to continue tracking our Dual Momentum Strategy and introduce a suite of leveraged strategies.

I'll be doing some posts on leveraged strategies this month and begin updating at the end of February.

This Month's Update

Dual Momentum Strategy (RM Style)

See our version of Dual Momentum's performance for 2017 by visiting the Portfolios page.

Last month's recommendation XEF.TO went up 2.83% for the month.

Current recommendation: XEF.TO (no change from last month)

Dual Momentum is a strict, rule-based investment system. Even after the market drop of the past week or so, XEF.TO is still up significantly in the past 12 months and up in the past 6 months.

It's important to give full credit to Gary Antonacci for this simple but effective investment strategy. Check out his site—Optimal Momentum—and read his book to learn all about this strategy before implementing it for your own portfolio.

I am confident that Dual Momentum is a great strategy that's likely to outperform a lazy portfolio strategy on a risk-adjusted basis. If you're afraid of big drawdowns, this strategy may be right for you. Every self-directed investor should give this strategy serious consideration.

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.

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8 Replies to “RM Portfolios Update: January 2018”

  1. “Thanks to some awesome new ETFs from Vanguard, there is no longer any benefit to running your own balanced strategy using multiple ETFs!”

    Paraphrasing Garth from the GreaterFool:

    Buying a single ETF means putting your money in a single financial asset and are exposed to the risk that inherently represents. An ETF is a single security – one product created by a company – which derives its market value from underlying assets. What happens if liquidity dries up for an untested security? There is no diversification when you hold only one security.

    Also, and this is my own view: having multiple ETFs in the portfolio allows you to sell the best performers should you need some cash for an emergency. If you hold a single ETF, then you are selling all the underlaying securities, including the under-performers. In a situation like this; I prefer to cash in the best performers.

    1. Mr. Rich Moose says:

      Yes, and Garth makes a very nice living convincing people to pay him 1% of their assets. He does this by suggesting he and his snappy portfolio advisors hit the most perfect sweet spots blending ETFs from multiple asset classes.
      Promoting Vanguard Portfolio ETFs neuters the special sauce where with Garth butters his bread. Always look at the incentives…
      Vanguard is a super reputable company and so far the liquidity of these products has been decent considering their age. It will likely only get better from here.
      As for the diversification argument, it’s pure nonsense. These Portfolio ETFs are very well diversified. I remember hearing the same arguments from financial advisors years ago when ETFs first came on the scene. Now many use ETFs themselves.

    2. Total disclosure: I don’t pay a cent to Garth. I just read his blog, same as I read other financial blogs including this one.

      Of course I see Garth is running a business, and honestly I don’t see anything wrong or unethical with that. Vanguard itself is running a business. All cool.

      Talking about Vanguard: this company is not too big to fail. Think of Lehman Brothers in the US or Nortel here at home. Plus, ETFs go out of the market from time to time and get liquidated. I don’t think either Vanguard or any product they offer is except from this risk. So, I like to be diversified with more than one ETF.

      As for the liquidity, take VBAL for instance. It just has 5.60 million (CAD) in total assets. Not what I’d call liquid.

    3. Yanniel says:

      Just thought about this when reading your other article about the tax efficient investing: Using this “all-bundle-in” Vanguard ETFs is not tax efficient.

      You cannot allocate the grow assets to the TFSA for instance, because everything is bundled together. Also, you cannot convert interest/dividend income to capital gains because these ETFs are not swap based.

    4. Mr. Rich Moose says:

      There are some ways to make it relatively tax efficient. You could also use VGRO.TO in your TFSA and VBAL.TO or even VCNS.TO in your RRSP or other accounts. Since the ETF is a portfolio model, you never have to re-balance meaning no tax triggers in a NR account.
      I agree that these portfolio ETFs are likely not the most tax efficient for high income individuals in a NR account. Swap-based ETFs are certainly better.
      While the new Vanguard ETFs are not the answer for everyone, they are probably the best choice for >90% of investors. Just the reduction in likelihood of making amateur mistakes is probably worth the extra management fees and extra bit of tax you could pay in some situations.

  2. Hi Daren,

    May I ask what investment strategies you are using at the moment? It seems to me you ditched your passive investments, but kept using Dual Momentum, right? What other strategies are you using that might be of interest to other fellow DIY investors?

    I bought Gary’s book and I read it in one day. I came to know about his book and his DM strategy in this blog. Thank you Daren for sharing this with the world.

    1. Mr. Rich Moose says:

      I’m glad you liked the book! I know the info in this blog concerning DM isn’t necessarily “pure” as Gary shares it with the public. I do appreciate that you see value in it.
      You are correct, no passive in my portfolio. I actually have never been a truly passive investor. In the past, I’ve always held some individual stocks, or used leverage, or “dabbled” with value strategies (in the very beginning of my investing).
      Currently I run my own version of DM in registered accounts and I use a leveraged trend following strategy in NR accounts. This post explains some of that: http://therichmoose.com/post20170728/
      As my net worth grows, I’m inclined to investing via a dual barbell approach with a trend overlay in my NR account. Unless something drastically changes, my version of DM will continue in registered accounts.
      For safety and return smoothing, I like the idea of running 2 systems and not having all my money in a single strategy.

    2. Yanniel says:

      Thank you Mr Moose for sharing this!

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