RM Portfolios Update: April 2019

Welcome to the April 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 April 2019.

Vanguard Growth ETF (VGRO.TO)
April:  +3.00 percent
12-Month:  +8.27 percent

Vanguard Balanced ETF (VBAL.TO)
April:  +2.22 percent
12-Month:  +7.51 percent

Vanguard Conservative ETF (VCNS.TO)
April:  +1.44 percent
12-Month:  +6.73 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: -3.08 percent
Index April Performance: +4.01 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%): +19.20 percent
HSU.TO (30%) & XSB.TO (70%): +12.31 percent

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

UPRO (40%) & BSV (60%): +24.58 percent
UPRO (30%) & BSV (70%): +18.89 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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2 Replies to “RM Portfolios Update: April 2019”

  1. Hi Daren

    I came across your blog when I was doing DM research, and have been catching up on your older posts and all the information you provide – thanks for all that!

    I noticed in your paragraph about leveraged barbell you said not to hold bonds in one account, and the leveraged ETF in another.

    Do you mean account as in registered/non-registered? or do you mean accounts within a brokerage, and not to break up the portfolio across different brokerages (but within the same registered/non-registered account type) – and if so, why do you suggest that?



    1. Daren (Editor) says:

      Thanks Matt!
      It’s important not to split up the allocation across accounts because the leveraged ETFs (or LEAPS options) are extremely volatile. You need that large allocation to bonds for stability and so you don’t wipe out your account (especially when it’s a TFSA!).
      For example, lets say you have $50,000 of which $25,000 is in a TFSA/RothIRA and $25,000 is in a RRSP/401(k). Lets also assume you will follow a LBP with a 40 percent allocation to 3x ETF like UPRO and 60 percent in bond ETF like BSV. Normal advice says put your aggressive stuff in the TFSA/RothIRA and the less aggressive stuff in RRSP/401(k). This means your TFSA/RothIRA would be $20,000 in UPRO & $5,000 in BSV and your entire RRSP/401(k) would be BSV. If the S&P 500 falls 30 percent, your TFSA/RothIRA would shrink to about $7,000. You are limited in adding more money, so you can’t pull money from your RRSP/401(k) to top it up.
      It’s better to invest $10,000 in UPRO & $15,000 in BSV in both accounts. In that scenario if the S&P 500 falls 30 percent each account would be worth $16,000. You could easily re-balance and work from there.

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