Beyond.ca

Registration is free! Car Forums - Member Rides Car Forums - Find other members Car Forums - Calendar Car Forums - Frequently Asked Questions Forum Rules and Regulations Car Forums - Search Logout
Beyond.ca - Car Forums : Powered by vBulletin version 2.3.9 Beyond.ca - Car Forums > Lounge > Real Estate / Finance > Financial Advisor vs. Adviser


Author
Thread
suntan
First Gear

Location: Calgary, AB
What I drive:
Posts/Day: 0.24
Trader Rating: (0)
User Rating: 97%


quote:

Originally posted by Buster


Close.

Basically the best is a balanced portfolio of index tracking ETFs, covering both global/US and maple. Then mix in a quarter or a third of fixed income fund. Done.

The concept of active management for retail investors is basically bogus at this point.

The TSX is a fucking shitty index. Way too much weight on banks and energy. It doesn't help that those two sectors also have a lot of volatility. And the TSX energy sector long term is a useless piece of shit.

What Type_S1 mentioned is a very, very old strategy. It even has a name - the two minute portfolio. Buy the top two stock by market cap in each TSX sector. Rebalance every year. Does away with a lot of volatility.

From behind the G&M paywall.

The Two-Minute Portfolio got taken to school last year by the S&P/TSX composite index and even the average Canadian equity mutual fund.

The sad results will be familiar to investors who put a big emphasis on quality blue-chip stocks. Focusing on quality, defined in large part by size, payment of dividends and low volatility, has for years been the key to investing success in the Canadian stock market. But things changed in 2016, a year during which speculative sectors such as energy and mining led the market and more conservative stocks lagged.

Itís in that latter group of underperformers in which we find the 2MP, an ongoing experiment to see if you can make a competitive return over the long term simply by investing equal amounts of money in the two largest dividend stocks in each of the subindexes of the Toronto Stock Exchange.

Thirty years of back-testing results tell us the 2MP is a long-term index beater, even when you factor in the cost of brokerage commissions to rebalance the portfolio every year. But last year was a setback that demands attention because it has a lot to say about the experience of being an investor who focuses on quality. The 2MP delivered a total return (dividends plus share-price changes) of 7.6 per cent, while the S&P/TSX composite index soared 21.1 per cent.

Two factors worked against the 2MP and other investing products and strategies that focus on big blue chips. One is that resource-based sectors led the market. The other is that smaller, more speculative companies (many of them in the resource sector) were in favour last year.

Conservative, quality-focused investing typically means avoiding smaller stocks and underweighting the volatile energy and materials sectors. The 2MP does this by targeting large companies and assigning all sectors a weighting of 10 per cent. Energy and materials together make up 20 per cent of the 2MP, compared with 33 per cent for the index. Both sectors were up by 50 per cent in the 12 months to Jan. 10, a surge that benefited the index much more than the 2MP.

The 2MP just wasnít made for these times. If you have a portfolio of big blue chips, you may find yourself in the same predicament. What to do about it? The 2MPís long-term results suggest a do-nothing approach.

The people at Morningstar CPMS crunch the numbers for the 2MP and have established a record back to 1986. Since then, the portfolio has produced an annualized return of 10.3 per cent and the S&P/TSX composite has made 8.3 per cent. Over the past three-, five- and 10-year periods, the 2MP outperformed the index by two to four percentage points.

These numbers suggest holding a diversified portfolio of big blue-chip dividend stocks is a sound strategy over the long term, even if there are years when your holdings massively lag the market. This 2MP has been through this before. Back in 2009, the rebound year after the financial crisis, the portfolio made 13.7 per cent while the index made 35.1 per cent.

So how does egregious underperformance such as this turn into better long-term numbers than the index? One way is by doing better in down markets. When the index lost 33 per cent in 2008, 8.7 per in 2011 and 8.3 per cent in 2015, the 2MP produced losses of 19.8 per cent and 2.9 per cent and a gain of 0.3 per cent, respectively.

Letís be clear about the 2MPís quality tilt. It applies for the most part, but there was one exception in the health-care sector last year. The selection of companies here is slim to begin with, and even more challenging if youíre looking for dividend payers. This scarcity forced the 2MP in 2016 into Concordia Healthcare, which plunged a staggering 91.8 per cent on a total return basis.

Such is life when you use a screening process that demands you pick stocks in all sectors. At least Concordia was limited to just 5 per cent of the total portfolio. On the plus side, the 2MP included Suncor Energy, Magna International, Royal Bank of Canada and Toronto-Dominion Bank, each up more than 25 per cent on a total return basis.

For 2017, there are just three substitutions to be made in the 2MP. Concordia is replaced by Extendicare Inc. in health care, Restaurant Brands International (which owns Tim Hortons) replaces Thomson Reuters in consumer discretionary and Barrick Gold replaces Agrium in materials. Minimal portfolio turnover is one of the benefits of running the 2MP. However, you also have to sell a portion of your winning stocks and buy more of the losers to get back to an even 5 per cent weighting for all.

If we estimate 20 trades a year to run the portfolio and we cost out those trades at the $10 commission most brokers charge, then we get total annual costs of $200. On a $50,000 portfolio, that amounts to a fee load of 0.4 per cent. A portfolio of index-tracking exchange-traded funds could easily cost less.

Another portfolio maintenance issue for 2017 is the recent addition of a real estate subindex to the S&P/TSX composite index. Real estate used to be included under financials Ė now, itís the 11th subindex. Accordingly, there is a pair of real estate stocks to add to the 2MP this year Ė RioCan REIT and Brookfield Property Partners.

Monitor the progress of the S&P/TSX composite index if you want to gauge the prospects for the 2MP in 2017. If resources and smaller stocks keep surging, the 2MP will continue to lag. Back in the mid-2000s, the portfolio had a four-year stretch of underperforming the index. Even so, itís the stronger long-term performer by a solid margin.

Report this post | IP: Logged

Old Post 04-06-2017 04:06 PM
suntan is offline Click Here to See the Profile for suntan Click here to Send suntan a Private Message Find more posts by suntan Edit/Delete Message Reply w/Quote
 
suntan
First Gear

Location: Calgary, AB
What I drive:
Posts/Day: 0.24
Trader Rating: (0)
User Rating: 97%


quote:

Originally posted by Buster
If you are seeing increased returns (ie the Two Minute), without identifying where that return is coming from (ie increased risk), then you aren't doing yourself any favors. Unless you think that the Big Cap companies are under-valued across the board in each sector? Has the market missed an opportunity with the Two Minute portfolio, and why hasn't it been arbed out of existence yet?

The TSX is not a fully efficient market. That is why. It is not even close to efficient as the S&P500. There are active Canadian equity funds that have beaten the TSX for decades.

Also you cannot "arb out" volatility - esp. when the source of that volatility are things like global oil and other commodity prices that the Canadian market has no control over (because we are price takers).

Even things like the January effect still exist on the most efficient markets.

I think your complain about the TSX is valid. But it's not just the TSX, it's the Canadian economy and Canada, reflected in a stock index. We're a resource based economy. So you can solve your complaint by re-balancing your index fund towards US/global and away from maple.

Let's be rational: Canadian equity should represent in your portfolio what it represents in the world equity market: 3%.

Wow that is really weird about where your post ended up.

Report this post | IP: Logged

Old Post 04-06-2017 09:42 PM
suntan is offline Click Here to See the Profile for suntan Click here to Send suntan a Private Message Find more posts by suntan Edit/Delete Message Reply w/Quote
ExtraSlow
Third Gear

Location: Food Court Wifi
What I drive: 2010 Recession Fighter LX
Posts/Day: 1.11
Trader Rating: (27)
User Rating: 101%


quote:

Since we are already fully off track, I'll jsut say that it seems insane to me that a person residing in Canada, and who plans to continue residing in Canada, would choose to have Canadian equity represent such a small part of their portfolio.

If your expenses are in Canadian dollars, makes sense to me that your investments should be largely in the same currency.

But then again, I'm pretty slow.

__________________
Make fun of me in the 2017 Tow Rig thread!

Report this post | IP: Logged

Old Post 04-07-2017 05:03 PM
ExtraSlow is offline Click Here to See the Profile for ExtraSlow Click here to Send ExtraSlow a Private Message Find more posts by ExtraSlow Edit/Delete Message Reply w/Quote
HiTempguy1
First Gear

Location: Red Deer, Alberta
What I drive: 1995 WRX STi
Posts/Day: 0.28
Trader Rating: (1)
User Rating: 95%


quote:

Originally posted by ExtraSlow

But then again, I'm pretty slow.



Well, I dunno if I'd take advice from suntan on investing. He seems to be doing pretty poorly for himself...

Originally posted by suntan
Fuark I have $300K saved up, I'm 43 and there's no fucking way I can get to $1.2 million by the time I'm 55 without some wicked luck.

__________________
sig deleted by moderator, click here for info

Report this post | IP: Logged

Old Post 04-07-2017 05:42 PM
HiTempguy1 is offline Click Here to See the Profile for HiTempguy1 Click here to Send HiTempguy1 a Private Message Find more posts by HiTempguy1 Edit/Delete Message Reply w/Quote
zhao
Newbie

Location: edmonton
What I drive:
Posts/Day: 0.01
Trader Rating: (0)
User Rating: 100%


quote:

Originally posted by ExtraSlow
Since we are already fully off track, I'll jsut say that it seems insane to me that a person residing in Canada, and who plans to continue residing in Canada, would choose to have Canadian equity represent such a small part of their portfolio.

If your expenses are in Canadian dollars, makes sense to me that your investments should be largely in the same currency.

But then again, I'm pretty slow.



What you said makes sense to me too.

But then again all my real estate is Canadian and right now all my stocks are Canadian. I like knowing the law for where I put my money.

Investing 3% of your money into Canada is a wonky strategy to me... investing by market share seems kinda flawed. I'd say Put your money where it's going to earn and ignore arbitrary lines or blanket statements of advice.

Report this post | IP: Logged

Old Post 04-07-2017 06:02 PM
zhao is offline Click Here to See the Profile for zhao Click here to Send zhao a Private Message Find more posts by zhao Edit/Delete Message Reply w/Quote
Buster
First Gear

Location: Calgary
What I drive: 2012 CTS-V Wagon, 2012 GL350
Posts/Day: 0.12
Trader Rating: (1)
User Rating: 97%


quote:

Originally posted by ExtraSlow


If your expenses are in Canadian dollars, makes sense to me that your investments should be largely in the same currency.



why?

Report this post | IP: Logged

Old Post 04-07-2017 07:56 PM
Buster is offline Click Here to See the Profile for Buster Click here to Send Buster a Private Message Find more posts by Buster Edit/Delete Message Reply w/Quote
Buster
First Gear

Location: Calgary
What I drive: 2012 CTS-V Wagon, 2012 GL350
Posts/Day: 0.12
Trader Rating: (1)
User Rating: 97%


quote:

Originally posted by suntan
The TSX is not a fully efficient market. That is why. It is not even close to efficient as the S&P500. There are active Canadian equity funds that have beaten the TSX for decades.

Also you cannot "arb out" volatility - esp. when the source of that volatility are things like global oil and other commodity prices that the Canadian market has no control over (because we are price takers).

Even things like the January effect still exist on the most efficient markets.
Let's be rational: Canadian equity should represent in your portfolio what it represents in the world equity market: 3%.

Wow that is really weird about where your post ended up.



I'm not saying you are wrong, I'd just like to see data behind your claims that active investing in Canada is more fruitful than elsewhere on a risk-adjusted basis.

As for the arb claim - if what you are saying is true, and that the two largest market cap companies in the market see better returns than the market as a whole over a long period of time, then you would see the market put a premium on these companies and that returns would fall back.

Your claim that the smaller cap portions of the TSX are less efficient than the bigger cap portions is inconsistent with your claim that the big cap companies are then a better deal because the market is not behaving efficiently there either.

Which is it?

Report this post | IP: Logged

Old Post 04-07-2017 08:05 PM
Buster is offline Click Here to See the Profile for Buster Click here to Send Buster a Private Message Find more posts by Buster Edit/Delete Message Reply w/Quote
The time now is 02:16 PM (GMT) Post New Thread   
 
Last Thread   Next Thread
Beyond.ca - Car Forums : Powered by vBulletin version 2.3.9 Beyond.ca - Car Forums > Lounge > Real Estate / Finance > Financial Advisor vs. Adviser



Show Printable Version | Email this Page | Subscribe to this Thread


Forum Rules:
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts
HTML code is OFF
vB code is ON
Smilies are ON
[IMG] code is ON
 

Google
 
Web beyond.ca

Terms of Use - Contact Us - Advertising Info - Archives - Car Blog

Powered by: vBulletin Version 2.3.9
Copyright ©2009 Jelsoft Enterprises Limited.

Bringing Car Enthusiasts together in discussion on our car forums

Page Statistics : Page generated in 0.07168388 seconds (74.31% PHP - 25.69% MySQL) with 33 queries.