# The 6-Pack Portfolio



## Argonaut (Dec 7, 2010)

Howdy folks! Haven't had much time to post here lately, as I now have a wife and newborn daughter filling up my free time. Just wanted to give you a heads up on some of the investment-related stuff I've been working on -- culminating in a published book, in fact. I've checked with james4beach, and it's okay to let you know about it, so long as this post isn't a sales pitch. On that note, I'm not asking you to buy my book, as most of the information in it I have wrote about here over the years and is searchable on the forums. And anything that's new I'll be discussing in this post!

For those of you who don't know, there's a thread kicking around here started by humble_pie called "Argonaut's 5-Pack", which housed my investment philosophy for owning a simple portfolio to beat the TSX index. As per the title, I have added a stock to make it a 6-Pack, if only because it's a catchier name (muscles, beer, pop, etc.). But in reality the current 6 sectors have been rotated within the 5-Pack over the years anyway. The portfolio is constructed by choosing one stock of each category:

*6-Pack Portfolio*

*Bank*: RY, TD, BNS
*Railroad*: CNR, CP
*Telecom*: T, BCE, RCI.B
*Utility*: FTS, EMA, CU
*Pipeline*: TRP, ENF, IPL
*REIT*: CAR.UN, REF.UN

Which stock you choose within a sector (and you can choose ones not listed above) is up to you. With hindsight you can pick winners and losers between the banks, pipelines, etc.. but I've found that doesn't matter as much as just being invested in these sectors. Altogether this portfolio gives you some low volatility, good dividends, and market-beating performance. For larger portfolios you can also double your choices to make a 12-Pack.

I've always preached that it's easy to beat the TSX because it's such a bad index -- over-encumbered by financials and especially the cyclical resource stocks, something that my portfolio avoids. I've been running slight variations of this setup since 2011, and it has beat the index every year since then.. averaging a crazy +8% alpha with lower risk (standard deviation) than the TSX.

My experience combined with the research I did while writing the book also led me to develop my ideal Canadian asset allocation -- something I've called the Advanced Asset Allocation (AAA). This allocation can combine with and complement the 6-Pack Portfolio. It takes inspiration from the Permanent Portfolio, and seeks to both grow and protect your capital while minimizing volatility. It is a bit more aggressive though, which I feel is necessary given lower interest rates. The setup:

*Advanced Asset Allocation (AAA)*

*30% Canada Stocks*: 6-Pack Portfolio
*30% US Stocks*: VTI or SPY
*20% Gold*: GLD or physical
*20% Bonds/Cash*: VAB or XBB, investment savings account

You could say it's like a 60/40 risk/safety portfolio. The difference between the AAA allocation and conventional setups is the gold component, at the expense of international/emerging market stocks or more bonds. I'm a gold guy myself so I may be biased, but through backtesting I've found that it definitely lowers risk and the number of down-years, while increasing or maintaining returns. This makes sense because of its low correlation with other asset classes.

Hope this investment philosophy can spark some discussion/interest. Let me know if you have any questions! If you want to check out my book, you can search Amazon.ca or Amazon.com for "6-Pack Portfolio" or "How to Beat the Canadian Stock Market". They have a "Look Inside" feature where you can read the first third of the book, dealing with the whole 6-Pack aspect. Feedback on my writing, or a book review on Amazon would be great.

I was looking through my old messages and noticed that some of you let me know that you had invested in the same or similar stocks several years ago. Have you been enjoying the results? Switched to something else? Curious to hear how you've made out. Let me know how it's going.


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## fatcat (Nov 11, 2009)

i have owned for a long time and plan to keep for a long time: RY,TD,CNR,T,FTS and EMA
i see no need to own a pipeline at the moment but do own a chunk of SU
since i file in the usa i avoid reits because of tax reporting

i am going to shift some of my canadian stocks into emerging markets so i do really disagree with your omission there … emerging is where the action will be over the next couple of decades and i think political risk in canada is rising though david rosenberg disagrees https://www.theglobeandmail.com/inv...ring-a-mouth-watering-opportunity-for-global/

i would go 20/20/20 instead of 30/30 … 

i would never own that much gold as it is not only a non-productive asset, it actually costs you money to own … in fairness though because of my age i am not looking at a time frame where gold might actually be useful … i get the theory but just don’t think it works now as a net-negative when i could earn more with the allocation

if i were under 40 i wouldn’t even have bonds at all and would shift to something like 
25 canada (your 6-pack) 25 IVV/SPY 25 FEZ and 25 VWO

good work on the book argo, it will prove useful to many i am sure


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## like_to_retire (Oct 9, 2016)

I started a Canadian only stocks portfolio in 2011 to beat the TSX60. It's a bit of a takeoff of the Dogs portfolio, but quite a bit different. It consists of equal allocations to 8 sectors consisting of Financial Bank, Financial Non-Bank, Energy, Telecom, Utilities, Consumer Discretionary, Consumer Staples, and Industrial. Each sector represents 12.5% allocation. 

No allocation is given to Materials, Information Tech and Health Care. I have 3 stocks per sector for a total of 24 stocks. The TSX60 is such a skewed index, it's fairly easy to beat. Since I started in Nov 2011, as of Dec 2017 (I only update once a year), the TSX60 has enjoyed a Total Return of 62.7%, while my portfolio has a Total Return of 96.9%.

And I don't even have a book. 

ltr


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## john.cray (Dec 7, 2016)

Thanks for sharing all this information.
I also follow this approach, but for less than a year. So far my X-pack has underperformed XIC which I used to own previously.

Ever since I exchange XIC for individual holdings in equally weighted sectors, I've been wondering why no one of the ETF providers has come up with an ETF that does something like this? BMO has a lot of equal weight ETFs. Isn't it time for an actual product that does that instead of everyone compiling their own set?


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## Argonaut (Dec 7, 2010)

fatcat said:


> i am going to shift some of my canadian stocks into emerging markets so i do really disagree with your omission there … emerging is where the action will be over the next couple of decades
> ...
> i would never own that much gold as it is not only a non-productive asset, it actually costs you money to own … in fairness though because of my age i am not looking at a time frame where gold might actually be useful … i get the theory but just don’t think it works now as a net-negative when i could earn more with the allocation
> ...
> ...


*On International Stocks & Emerging Markets*: I'm not a fan of either of these for a number of reasons. One of them is that the US market, and to a lesser extent the Canadian market already have significant global exposure with multinational corporations. Another is that good performance for emerging markets does not necessarily translate into their stock market -- what you're actually buying are stocks, and these companies and countries are questionable and maybe even corrupt by Western standards (China, Brazil, Russia, etc.). Another reason is that global stock market correlation is moving together in recent years with globalization.. you're not necessarily protecting yourself by owning Europe and Japan. And lastly, performance for INT & EM stocks has been woeful, basically treading water this entire century. Yeah, this may not continue indefinitely, but still.

*On Gold*: It's a contentious topic to be sure. I have always liked gold and think that it has a beneficial place in portfolios. It has cyclical periods where it performs much better than other assets, and has low correlation with especially stocks. This reduces overall portfolio risk. If you buy the TSX you're buying gold miners anyway. I prefer to eliminate the miners and buy the metal itself. Why? Because gold is the scarce resource, while the mining companies are continuing to deplete their own scarce resource and source of revenue.

*On Bonds*: My bond allocation is combined with cash for some safety, and again negative correlation with stocks to reduce risk. I don't think 20% is too high for most ages. Sometimes protecting capital and reducing drawdown are more important than total return at an unspecified endpoint in time.

Thanks for your comments!


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## fatcat (Nov 11, 2009)

Argonaut said:


> *On International Stocks & Emerging Markets*: I'm not a fan of either of these for a number of reasons. One of them is that the US market, and to a lesser extent the Canadian market already have significant global exposure with multinational corporations. Another is that good performance for emerging markets does not necessarily translate into their stock market -- what you're actually buying are stocks, and these companies and countries are questionable and maybe even corrupt by Western standards (China, Brazil, Russia, etc.). Another reason is that global stock market correlation is moving together in recent years with globalization.. you're not necessarily protecting yourself by owning Europe and Japan. And lastly, performance for INT & EM stocks has been woeful, basically treading water this entire century. Yeah, this may not continue indefinitely, but still.


fair points, i do try to get international and emerging exposure via JNJ, UL, QQQ and DIS



> On Gold: It's a contentious topic to be sure. I have always liked gold and think that it has a beneficial place in portfolios. It has cyclical periods where it performs much better than other assets, and has low correlation with especially stocks. This reduces overall portfolio risk. If you buy the TSX you're buying gold miners anyway. I prefer to eliminate the miners and buy the metal itself. Why? Because gold is the scarce resource, while the mining companies are continuing to deplete their own scarce resource and source of revenue.


 gold ... contentious ? nawww  ... it is the unpredictability of gold that i don't like ... those good periods are just so hard to predict though yes, when they come, you are happy to look at the price for AU



> On Bonds: My bond allocation is combined with cash for some safety, and again negative correlation with stocks to reduce risk. I don't think 20% is too high for most ages. Sometimes protecting capital and reducing drawdown are more important than total return at an unspecified endpoint in time.


 well yes, i would not suggest anyone go all-equity unless they were working and had no need at all (though tom connolly the dividend growth guy would disagree) to touch their portfolio ... in that case and making sure they were covering their liquidity needs i would say you could go all-stock though yes, 20% to bonds won't break the bank and could prove useful, if only to liquidate and buy more stocks in the event of a crash[/QUOTE]


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## Argonaut (Dec 7, 2010)

like_to_retire said:


> I started a Canadian only stocks portfolio in 2011 to beat the TSX60. It's a bit of a takeoff of the Dogs portfolio, but quite a bit different. It consists of equal allocations to 8 sectors consisting of Financial Bank, Financial Non-Bank, Energy, Telecom, Utilities, Consumer Discretionary, Consumer Staples, and Industrial. Each sector represents 12.5% allocation.
> 
> No allocation is given to Materials, Information Tech and Health Care. I have 3 stocks per sector for a total of 24 stocks. The TSX60 is such a skewed index, it's fairly easy to beat. Since I started in Nov 2011, as of Dec 2017 (I only update once a year), the TSX60 has enjoyed a Total Return of 62.7%, while my portfolio has a Total Return of 96.9%.
> 
> ...


Yeah I like this approach, equal weight allocation has worked good for me as well. And Canada doesn't have many winners in the IT and Health Care fields these days -- also it's much harder to find them unless you're an expert in the field. Things like Telecoms and Banks and Railroads are easier for guys like me to understand.

I started the X-Pack approach in March 2011. By my calculations it has returned 147% since then, compared to 48% total return for the TSX Composite. Pretty happy so far.


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## Argonaut (Dec 7, 2010)

john.cray said:


> Thanks for sharing all this information.
> I also follow this approach, but for less than a year. So far my X-pack has underperformed XIC which I used to own previously.
> 
> Ever since I exchange XIC for individual holdings in equally weighted sectors, I've been wondering why no one of the ETF providers has come up with an ETF that does something like this? BMO has a lot of equal weight ETFs. Isn't it time for an actual product that does that instead of everyone compiling their own set?


Part of the fun and appeal of this approach is not buying a fund -- you can avoid the MERs that way. I know some MERs these days are rock-bottom cheap, but those are usually tracking a well-known index. How many and what sectors are you choosing? Although I haven't had any calendar years of underperformance compared to the index, sometimes it underperforms for a few months or so. The ~4% dividends I have can end up being a deciding factor in the end.


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## james4beach (Nov 15, 2012)

Congrats on the book Argonaut! Your approach is very similar to mine. In fact my own unbundled-XIU leads to a very similar stock portfolio. Additionally my overall allocation is the Permanent Portfolio, and though I have a more risk averse allocation, it's a very similar concept where gold offers diversification due to low correlation with the other asset classes.

Something I worry about though (both in my approach and yours) is that we are exclusively investing in large cap TSX stocks. The large caps have outperformed since 2000, so this strategy has done well for 18 years now, but I don't think this will always be true. Imagine we enter a prolonged period where the small or midcaps outperform large caps. In that kind of environment, a TSX Composite index (XIC or ZCN) should perform better.

Does that concern you as well?

My second worry is on sector selection. Many of us around here have chosen very similar sectors for our X-packs, but that's a hindsight thing. We chose these because other sectors like materials have done poorly. But what happens, in the future, when some new sector grows to become significant, or maybe even the leader of the Canadian stock market? Something like the TSX Composite would capture that effect, but our portfolios (that exclude tech) will entirely miss the boat if it turns out that tech grows and matures to become a major part of the Canadian market. Or even some new sector we can't think of today.

(Or maybe it's even happening now ... Canadian tech/XIT outperformed the TSX over both 10 and 15 years! And yet we exclude tech from our X-packs.)

So how does one adapt, over the decades, to changing scenarios like that? Or imagine that commodities enter an extremely strong bull cycle, and the energy and mining stocks propel the TSX Composite. All of our X-packs will miss out on this effect and could underperform for a decade or longer, if that happens.


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## latebuyer (Nov 15, 2015)

I've never heard someone make the argument that you shouldn't invest in emerging markets because they could be corrupt. This made me think that another reason not to invest would be because they don't have strong labour laws in some of those countries. In other words it isn't ethical to invest. In any event thanks for that as i've always felt i should invest in them and now i don't want to.


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## bettyboop (Dec 13, 2011)

Congratulations on your book!


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## My Own Advisor (Sep 24, 2012)

First of all..congrats on the book 

Second, yeah, I decided a long time ago to buy and hold what all the big Canadian mutual funds and ETFs own (and still own) - basically "TULFs" in Canada for the reasons you noted above (TULFs = telcos, utilities, low-yield dividend growers and financials (banks and lifecos)).

The lifecos haven't done very well in the last 5-years or so, utilities beaten up of late; but in total, owning the following:

6-Pack Portfolio

Bank: RY, TD, BNS +all other banks
Railroad: CNR, CP
Telecom: T, BCE, RCI.B 
Utility: FTS, EMA, CU + other utilities like AQN, BEP.UN, CPX, INE
Pipeline: TRP, ENF, IPL + PPL
REIT: CAR.UN, REF.UN + many more.....

"Altogether this portfolio gives you some low volatility, good dividends, and market-beating performance. For larger portfolios you can also double your choices to make a 12-Pack."

Yupper.

5-year returns to date about 9%. XIU/XIC, etc. about 7%, largely dragged down by REITs and utilities of late.

My personal experience is it's a lot more difficult to beat the S&P 500, so I use a combination of dividend growers (JNJ + PG) and VYM for yield and growth. So far, so good.

Everyone has their own way to invest but at the end of the day, as long as you are meeting your goals - all good in my book.

BTW - I would be more than happy to interview you Argo for the blog, giveaway a few copies of the book to lucky readers and promote it. Just flip me an email or private message. All the best and hope the book sales go well!!


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## Freedomeer (Jan 3, 2018)

How long have you tested your 6pack portfolio for? I would feel naked without some more tech exposure. We have some great unknown tech companies in canada like CSU.


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## fatcat (Nov 11, 2009)

james4beach said:


> Congrats on the book Argonaut! Your approach is very similar to mine. In fact my own unbundled-XIU leads to a very similar stock portfolio. Additionally my overall allocation is the Permanent Portfolio, and though I have a more risk averse allocation, it's a very similar concept where gold offers diversification due to low correlation with the other asset classes.
> 
> Something I worry about though (both in my approach and yours) is that we are exclusively investing in large cap TSX stocks. The large caps have outperformed since 2000, so this strategy has done well for 18 years now, but I don't think this will always be true. Imagine we enter a prolonged period where the small or midcaps outperform large caps. In that kind of environment, a TSX Composite index (XIC or ZCN) should perform better.
> 
> ...


i agree on the large cap bias completely ... your whole post is an argument for indexes james


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## AltaRed (Jun 8, 2009)

fatcat said:


> i agree on the large cap bias completely ... your whole post is an argument for indexes james


And why I at least index ex-Canada. Broad market returns are just fine, whatever they may be. I have way better things to do with my time.


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## gibor365 (Apr 1, 2011)

For long time wanted to initiate position in CNR, but it always seemed to expensive...now looks like it fairy valued...may initiate position when yield exceeds 2%



> We have some great unknown tech companies in canada like CSU.


Why to invest into unknown companies with unknown future if you can invest into well-known on Nasdaq?!

CSU P/E is around 65!


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## Jimmy (May 19, 2017)

You need some Global which is the other 40-50% of the total market IMO. The diversification you get is also from many other govts and economies at different stages in the cycle. The US economy has been going strong for almost a decade now and is in a mature stage. The EU and Asia are still just now starting to grow after all the QE. Having US Global companies helps but their presence is limited in many markets . Banking and Infrastructre in China and India for ex. EAFE has returned 12% over the past 5 yrs. much better than the CAN mkt.

There is also more growth potential in EM w the gdp of India and China growing at 5+% vs 2.7% for the US. Their volatilities are also similar or even lower than the US's now. EM returned 28% last year. P/Es are more attractive and realistic too. 13 vs 25 for the S&P


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## Argonaut (Dec 7, 2010)

james4beach said:


> Congrats on the book Argonaut! Your approach is very similar to mine. In fact my own unbundled-XIU leads to a very similar stock portfolio. Additionally my overall allocation is the Permanent Portfolio, and though I have a more risk averse allocation, it's a very similar concept where gold offers diversification due to low correlation with the other asset classes.
> 
> Something I worry about though (both in my approach and yours) is that we are exclusively investing in large cap TSX stocks. The large caps have outperformed since 2000, so this strategy has done well for 18 years now, but I don't think this will always be true. Imagine we enter a prolonged period where the small or midcaps outperform large caps. In that kind of environment, a TSX Composite index (XIC or ZCN) should perform better.
> 
> ...


*Large Caps*: I think if you're worried about large cap bias, the answer isn't XIC or VTI. If you're buying a major index, you're essentially buying large caps. You can see that XIC returns mirror XIU, while VTI returns mirror SPY. The 6-Pack has things like CAP REIT, which is relatively small at ~$5 billion market cap. You can also choose among some smaller utilities or pipelines. Why large caps work in the other industries, i.e. Bank, Telecom, Railroads.. is that they operate as oligopolies, so there's no real opportunity for anything but large caps. I talk more about why I love oligopolies in the book, but the short version is that they are good and you should own them!

*Sectors*: I exclude Consumer stocks because the dividends are too low, and I exclude Health Care and Technology stocks because I don't know enough about them, and because of lack of quality options on the TSX. But hey, guess what.. I also completely index the US Market, which has excellent options for Tech, Health Care, and Consumer stocks. So I'm covered there, and can focus on the stocks that work better in Canada. And as I've said before about commodities, I'd rather own the scarce resource (gold) than those who mine it.

I think your strategies are cool too James.. one of the other guys who understands about the importance of low/negative correlating assets! And not just the conventional Stocks/Bonds split.


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## Argonaut (Dec 7, 2010)

latebuyer said:


> I've never heard someone make the argument that you shouldn't invest in emerging markets because they could be corrupt. This made me think that another reason not to invest would be because they don't have strong labour laws in some of those countries. In other words it isn't ethical to invest. In any event thanks for that as i've always felt i should invest in them and now i don't want to.


Yeah, with Emerging Markets you're not getting some magical exposure to some ideal vision of the global market. When you buy VWO you're getting things like Chinese banks. There's a different mindset outside of the West when it comes to the capitalism. Do you think the Chinese banks are going to put their shareholders and stakeholders first, or the Big Brother Communist Party? There's some exceptions.. I like Alibaba as an individual stock, Jack Ma is a cool guy.



bettyboop said:


> Congratulations on your book!


Thanks!



My Own Advisor said:


> BTW - I would be more than happy to interview you Argo for the blog, giveaway a few copies of the book to lucky readers and promote it. Just flip me an email or private message. All the best and hope the book sales go well!!


That sounds great, MOA. I'll take you up on that for sure.



Freedomeer said:


> How long have you tested your 6pack portfolio for? I would feel naked without some more tech exposure. We have some great unknown tech companies in canada like CSU.


Tested since March 2011 in practice, in theory I did some backtesting to the year 2000. It's all good, although the further you backtest the more survivorship bias there is. I'm happy with the tech exposure that the US index gives, in fact they are somewhat overweight tech.



fatcat said:


> i agree on the large cap bias completely ... your whole post is an argument for indexes james


As I said before, most traditional indexing is effectively buying large caps. Unless you get some index that is more equal weight, or tracks specifically small/mid caps.


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## james4beach (Nov 15, 2012)

Argonaut said:


> *Large Caps*: I think if you're worried about large cap bias, the answer isn't XIC or VTI. *If you're buying a major index, you're essentially buying large caps*. You can see that XIC returns mirror XIU, while VTI returns mirror SPY. The 6-Pack has things like CAP REIT, which is relatively small at ~$5 billion market cap. You can also choose among some smaller utilities or pipelines. Why large caps work in the other industries, i.e. Bank, Telecom, Railroads.. is that they operate as oligopolies, so there's no real opportunity for anything but large caps. I talk more about why I love oligopolies in the book, but the short version is that they are good and you should own them!


Thanks this is a very good point, and it alleviates my concern. You're absolutely right that XIU (largest caps) has always mirrored the TSX Composite, and both the Canada & US broad indexes -- what passive indexers and couch potatoers use -- effectively are the same as holding large caps.

That's been true since the inception of these ETFs about 20 years ago, and that's a pretty long time.


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## Eclectic12 (Oct 20, 2010)

Shouldn't the statement "XIU (largest caps) has always mirrored the TSX Composite" be more about it's performance being close to the TSX Composite?

Neither XIU or XIC match the TSX composite ... one needs to add a second ETF for that.

Canada does not have a single ETF that matches the TSX Composite Index, according to wiki.
https://en.wikipedia.org/wiki/S&P/TSX_Composite_Index


Cheers


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## Freedomeer (Jan 3, 2018)

gibor365 said:


> For long time wanted to initiate position in CNR, but it always seemed to expensive...now looks like it fairy valued...may initiate position when yield exceeds 2%
> 
> 
> Why to invest into unknown companies with unknown future if you can invest into well-known on Nasdaq?!
> ...


That is trailing P/E. Their forward P/E is approximately 26. I would say there are more factors than that. Considering they have not issued an additional share since the 90s, Have some of the best capital allocators in Canada, 5 year revenue growth over 20%, and have a clean balance sheet. And I prefer smaller names to big names as it has been proven that large companies never stay on top forever.


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## like_to_retire (Oct 9, 2016)

Eclectic12 said:


> Shouldn't the statement "XIU (largest caps) has always mirrored the TSX Composite" be more about it's performance being close to the TSX Composite?
> 
> Neither XIU or XIC match the TSX composite ... one needs to add a second ETF for that.
> 
> ...


But if I look at the Investment Objective for XIC it say: _INVESTMENT OBJECTIVE -Seeks long-term capital growth by replicating the performance of the S&P®/TSX® Capped Composite Index, net of expenses._

If I overlay the TSX Composite with XIC, it appears to track pretty well. It's so close you have to examine closely to see the two plots.

Why would I need a second ETF?

View attachment 18530


ltr


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## RBull (Jan 20, 2013)

like_to_retire said:


> But if I look at the Investment Objective for XIC it say: _INVESTMENT OBJECTIVE -Seeks long-term capital growth by replicating the performance of the S&P®/TSX® Capped Composite Index, net of expenses._
> 
> If I overlay the TSX Composite with XIC, it appears to track pretty well. It's so close you have to examine closely to see the two plots.
> 
> ...


Yeah, kind of a strange one. On wiki it explains that XIC caps @ 10% but largest constituent is RY @ 6.56% so why does that matter. 

XMD has 189 and XIU has 60 holdings =249 total. XIC has the same total of 249. I checked and the smallest holding is Prometic for both XIC, and the smallest for the combination XMD & XIU. 

My guess is we're splitting hairs here if there is any difference at all.


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## AltaRed (Jun 8, 2009)

You don't. The other 1200+ companies really don't move the needle.


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## Argonaut (Dec 7, 2010)

XIC does match the TSX Composite. The only difference is that XIC tracks the TSX "Capped" Composite, which means that any one constituent cannot make up more than 10% of the index. Some quick napkin math suggests that Royal Bank does not make up 10%, so nothing does. This is presumably to avoid a Nortel situation where one company dominates the index, to the detriment of the investor. But right now it doesn't apply and XIC is de facto the TSX Composite.

Anyway that's all splitting hairs, but my main point is that XIC is basically the same thing as XIU.. so when you buy XIC it's the same as buying the large caps. In the past 5 years the performance was EXACTLY the same. Slightly higher capital gains in XIC were offset by slightly higher dividends in XIU.

People can "feel-good" by getting total market exposure from big-name ETFs. But in reality the total market is dominated by large cap performance. If you want anything else, you'll have to find more specific ETFs or pick individual stocks.


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## james4beach (Nov 15, 2012)

Right, the addition of the 'capped' methodology is to avoid a repeat of the Nortel situation. XIC is effectively the same as the TSX Composite. ZCN also tracks the TSX Composite.

From what I can tell, XIU performance long term has been about equal to the TSX Composite. So I'm inclined to agree with Argonaut that even if you buy one of the broadest index ETFs, you're still effectively buying the large caps.

Personally I think the sector selection and weightings have a bigger impact than how broad (how many hundreds of stocks) the portfolio contains.


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## Eclectic12 (Oct 20, 2010)

like_to_retire said:


> But if I look at the Investment Objective for XIC it say: _INVESTMENT OBJECTIVE -Seeks long-term capital growth by replicating the performance of the S&P®/TSX® Capped Composite Index, net of expenses._
> 
> If I overlay the TSX Composite with XIC, it appears to track pretty well. It's so close you have to examine closely to see the two plots.
> 
> Why would I need a second ETF?


It seems you have decided the differences are so small you don't ... which is different than what I see as implied by "XIU *has always mirrored* the TSX Composite".


Cheers


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## Eclectic12 (Oct 20, 2010)

RBull said:


> Yeah, kind of a strange one. On wiki it explains that XIC caps @ 10% but largest constituent is RY @ 6.56% so why does that matter ...


I guess you have forgotten when Nortel was 36% of the composite so that while lots of other companies where showing bad times ahead, Nortel's irrational exuberance meant the index did not reflect what was happening?

The capped version was put into place because of Nortel. The current largest constituent being lower does not mean a repeat is impossible.


Cheers


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## doctrine (Sep 30, 2011)

You're right - XIC isn't the same as the TSX Composite. More importantly, returns are much higher than the index. XIC provides dividends and distributions. The TSX Composite index does not as it only tracks the price weighted by market capitalization.

If you wanted true index returns then IShares should take the dividends for themselves out of XIC


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## RBull (Jan 20, 2013)

Eclectic12 said:


> I guess you have forgotten when Nortel was 36% of the composite so that while lots of other companies where showing bad times ahead, Nortel's irrational exuberance meant the index did not reflect what was happening?
> 
> The capped version was put into place because of Nortel. The current largest constituent being lower does not mean a repeat is impossible.
> 
> ...


That's a fair point. I didn't know the exact number on Nortel although I lived through it.

I was looking at the numbers now with RBC @ 6.56 and trying to understand why you were saying that the XIC doesn't represent the TSX composite index, when I stated that.


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## gibor365 (Apr 1, 2011)

doctrine said:


> You're right - XIC isn't the same as the TSX Composite. More importantly, returns are much higher than the index. XIC provides dividends and distributions. The TSX Composite index does not as it only tracks the price weighted by market capitalization.
> 
> If you wanted true index returns then IShares should take the dividends for themselves out of XIC


for real return check HXT


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## james4beach (Nov 15, 2012)

The proper way to quote both TSX Composite and XIC returns are as total returns -- assuming the reinvestment of dividends. This is the standard methodology required by mutual fund industry regulations.

You can either look at the iShares performance page, or the Morningstar page for XIC. Both will show calendar year performance as total returns.


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## Eclectic12 (Oct 20, 2010)

RBull said:


> That's a fair point. I didn't know the exact number on Nortel although I lived through it.


It seems to have been a double incentive ... one result seems to have been the switch to a different selection/index designer and another is the building of an capped version. I have seen articles that say that XIU was even more out of wack at the 40%+ range.




RBull said:


> ... I was looking at the numbers now with RBC @ 6.56 and trying to understand why you were saying that the XIC doesn't represent the TSX composite index, when I stated that.


I will have to double check but I suspect that because XIC has the cap, it isn't considered the same despite the list matching. XIU certainly does not match.

As you say - where the cap is not triggered, XIC likely works.


Cheers


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## mikeyrofl (Jul 12, 2016)

why not enbridge?


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## agent99 (Sep 11, 2013)

gibor365 said:


> for real return check HXT


I am not much into ETFs, but had a look at that. It uses a Swap basis and doesn't own any shares. Has some tax benefits, but not much good for us retirees who would have to sell units regularly to achieve cash flow. 

http://canadiancouchpotato.com/2011/06/06/understanding-swap-based-etfs/


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## Argonaut (Dec 7, 2010)

mikeyrofl said:


> why not enbridge?


I prefer Enbridge Income Fund (ENF) over Enbridge (ENB). Reason being is that ENF holds mature assets intended to provide income. Buying the parent company ENB is a play on the growth of their pipeline network. As we know, pipelines are currently in a toxic protest environment with governments terrified to act. I'm not gambling on any growth and am happy to own the mature pipelines.

The story is playing out so far with ENF down ~9% this year, but ENB down ~21%. It's really too bad that we're in this horrible investment climate right now because pipelines are a great business. The pipeline component is the most worrying of the 6-Pack sectors, but it has done me well in the past. I'm holding.


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## agent99 (Sep 11, 2013)

Argonaut said:


> I'm not gambling on any growth and am happy to own the mature pipelines.


I got out of all things Enbridge. It was those "mature" pipelines that concerned me. Steel doesn't mature like wine 

https://www.theglobeandmail.com/globe-investor/how-safe-are-north-americas-pipelines/article579241/


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## canew90 (Jul 13, 2016)

6-Pack:
Good work one your book and I think it would be suitable for any investor just staring out or those who have being investing for many years. However, having said that it’s interesting that though our approaches are similar, we preach different goals, but would probably end up at the same place.
We prefer to select only quality DG stocks with the goal of generating a growing income. Beating, matching or even comparing performance to the Index is ignored. Our investment strategy was to buy stocks which have paid dividends for many years and had a history of raising their dividend consistently (we did not have a rule of dropping companies which stopped raising their dividend, in fact we added to our bank stocks from 2009 thru to 2013). Try to buy on dips, adding to stocks one already owns or from a list of companies one might want to hold, ignoring all others. Don't worry about asset allocation or re-balancing. In fact we hold only 13 stocks in our RRIF, TFSA and Non-Reg’d. from four of your 6-pack (no bonds, ETF’s, Preferred’s or GIC’s). We hold no REIT’s or Railroads (though I think beginner investors should consider CNR).
We believe that if the Income is growing so will the price, eventually. We’ve been told that it’s Total Return that really counts but as our income exceeds our annual expenses, capital appreciation is nice but is of no real concern (even if the market crashes and market value drops 40% or more, provided our income continues to grow).


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## Ag Driver (Dec 13, 2012)

Deleted


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## Ag Driver (Dec 13, 2012)

Deleted


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## like_to_retire (Oct 9, 2016)

Ag Driver said:


> I'm assuming my portfolio in the short term should look like the following?
> 
> 6 Pack - 30% with equal weight between stocks
> TDB902 US Index - 30%
> ...


I don't feel that 6 stocks can properly represent the Canadian market. 

Personally I have 24 stocks that divides 8 Canadian sectors, with 3 stocks in each. 

If I didn't have the funds available to purchase 24, then I would recommend the index.

ltr


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## Argonaut (Dec 7, 2010)

Hey folks.

My 6-Pack had a 2.75% return in 2018. Not as good as in past years, but when compared with the XIC return of -8.71% it looks pretty good. With the alpha of ~11.5%, the outsized performance of this simple strategy continues, because I avoid the junk on the TSX.

I wanted to make a 2019 update on my book, but will just give you a heads up here.

Enbridge Income Fund got taken out by Enbridge. When my shares got converted, I sold the Enbridge and bought Pembina instead. Pembina is now the only pipeline I like, and this sector as a whole is very frustrating considering the political nature of pipelines. So much so that in a 12-Pack, I might not have a second pipeline, but something like Brookfield Infrastructure (BIP.UN), to make more of an "infrastructure + pipelines" sector in the portfolio.

My model 12-Pack looks something like this (can substitute RY for one of the other banks if wanted):


```
[B]Stock	Sector	Weight	Yield[/B]
TD	Banking	10.00%	3.98%
BNS	Banking	10.00%	5.01%
CNR	Rail	10.00%	1.84%
CP	Rail	6.00%	1.10%
T	Telecom	8.00%	4.85%
BCE	Telecom	8.00%	5.59%
FTS	Utility	8.00%	4.03%
AQN	Utility	8.00%	5.16%
BIP.UN	Inf/Pip	8.00%	5.37%
PPL	Inf/Pip	8.00%	5.51%
CAR.UN	REIT	8.00%	3.09%
CSH.UN	REIT	8.00%	4.25%
```


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## OnlyMyOpinion (Sep 1, 2013)

Thanks for posting. Do you have a column that shows 2018 total return?
I own many of those. I get a total return of -2.1% for a portfolio with those 12 weightings from Jan.1-Dec.31 2018:

*SYM Total Return*
TD -4.66%
BNS -12.64%
CNR -1.27%
CP 6.74%
T	-0.17%
BCE	-4.71%
FTS	4.08%
AQN	3.58%
BIP.UN	-12.48%
PPL	-6.71%
CAR.UN	22.81%
CSH.UN	-13.26%

Using: https://www.canadastockchannel.com/compound-returns-calculator/


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## Argonaut (Dec 7, 2010)

That is just my model 12-Pack for larger accounts. It's not what I actually owned. I own a 6-Pack. I also owned ENF for most of the year, then switched to PPL when it disappeared. Chartwell and BIP.UN are placeholders for now.. I may change my mind when I get around to filling out a 12-Pack for myself and my wife.

CAP REIT was the big driver of my personal returns. I keep saying apartments are a good business and retail is dead as far as REITs go. A lot of the money managers ignore that though. I like the retirement residences business, demand will go up with demographics (hence my CSH.UN placeholder pick). Demand is not going up with retail.


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## fatcat (Nov 11, 2009)

Argonaut said:


> That is just my model 12-Pack for larger accounts. It's not what I actually owned. I own a 6-Pack. I also owned ENF for most of the year, then switched to PPL when it disappeared. Chartwell and BIP.UN are placeholders for now.. I may change my mind when I get around to filling out a 12-Pack for myself and my wife.
> 
> CAP REIT was the big driver of my personal returns. I keep saying apartments are a good business and retail is dead as far as REITs go. A lot of the money managers ignore that though. I like the retirement residences business, demand will go up with demographics (hence my CSH.UN placeholder pick). Demand is not going up with retail.


i just bought a little bit of FCR again to add some diversity

i wouldn't count retail out just yet, i think we are going to see all kinds of creative uses for retail space (i walk by more and more of these "co-working" spaces in downtown victoria where people rent space to do their work and basically network with others and share space) and i believe that though online will continue to grow we will see a need for people to get out and be with other people and plain old shopping will remain resilient especially in prime urban areas


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## Eder (Feb 16, 2011)

Grats on getting married!


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## OnlyMyOpinion (Sep 1, 2013)

Argonaut said:


> That is just my model 12-Pack for larger accounts... I like the retirement residences business, demand will go up with demographics (hence my CSH.UN placeholder pick).


Got it, sorry I should have read more carefully.

I own CSH.UN, and also SIA which has done a bit better for me re total return. 
I'm a bit conflicted owning for-profit senior housing/care however. Maybe I rationalize it as getting back some of the $ my parents paid out for their pricey retirement living.


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## Argonaut (Dec 7, 2010)

fatcat said:


> i wouldn't count retail out just yet


Might be a generational thing. My boss says the same as you. But I know that I'm in my early 30's and I buy most stuff online (except groceries, but even those sometimes). People younger than me in their 20's and teens are going to be even moreso disconnected from shopping in person. Retail won't go away completely, but it will decline.. and that's not something to invest in.



Eder said:


> Grats on getting married!


Thanks, though it was a while ago.. already have a 1 year old!



OnlyMyOpinion said:


> I own CSH.UN, and also SIA which has done a bit better for me re total return.


I looked at Sienna too as a comparison to Chartwell. Both look OK, though I think Sienna is all nursing homes, while Chartwell has a mix of nursing homes and retirement residences which I like.


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## Ag Driver (Dec 13, 2012)

Deleted


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## Eder (Feb 16, 2011)

Sounds like a killer line up for younger investors. With the dividends rolling in it won't matter with possible frothy timing.


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## My Own Advisor (Sep 24, 2012)

Argonaut said:


> Hey folks.
> 
> My 6-Pack had a 2.75% return in 2018. Not as good as in past years, but when compared with the XIC return of -8.71% it looks pretty good. With the alpha of ~11.5%, the outsized performance of this simple strategy continues, because I avoid the junk on the TSX.
> 
> ...


Big fan of all those companies and the only one I don't (yet) own is CP. I will eventually, just need more cash to invest!!!


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## 30seconds (Jan 11, 2014)

Since my RRSP and TFSA are full would it be better to put the Fixed Income (bonds/gics) in my TFSA and have the CDN dividend stocks in my margin account?


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## like_to_retire (Oct 9, 2016)

30seconds said:


> Since my RRSP and TFSA are full would it be better to put the Fixed Income (bonds/gics) in my TFSA and have the CDN dividend stocks in my margin account?


Yes, fixed income will be taxed as interest income and attracts the most taxes, while dividends are more efficient as they benefit from the dividend tax credit. In addition, if you need to sell the stock that produces those dividends you can take advantage of claiming a capital loss or benefit from the capital gains taxable inclusion rate.

ltr


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## Eder (Feb 16, 2011)

Kinda wasting the TSFA imo...you want tax free growth here...if your RRSP is small that means you are most likely younger...don't put too much into fixed, wait till you're 20 years from pulling the pin.


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## redsgomarching (Mar 6, 2016)

Argonaut said:


> Hey folks.
> 
> My 6-Pack had a 2.75% return in 2018. Not as good as in past years, but when compared with the XIC return of -8.71% it looks pretty good. With the alpha of ~11.5%, the outsized performance of this simple strategy continues, because I avoid the junk on the TSX.
> 
> ...


I really wanted to buy into CN rail this year when I contributed to my TFSA, didnt pull the trigger and then now look! Blah!


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## john.cray (Dec 7, 2016)

Argonaut said:


> That is just my model 12-Pack for larger accounts. It's not what I actually owned. I own a 6-Pack. I also owned ENF for most of the year, then switched to PPL when it disappeared. Chartwell and BIP.UN are placeholders for now.. I may change my mind when I get around to filling out a 12-Pack for myself and my wife.


I wonder how your current X-pack looks like ?

Mine has been lagging XIU for the last month a little bit.


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## AltaRed (Jun 8, 2009)

john.cray said:


> I wonder how your current X-pack looks like ?
> 
> Mine has been lagging XIU for the last month a little bit.


LOL..... what are you doing with month-to-month comparisons? Look at it, as a minimum, on a 12 month rolling forward basis These kinds of things can have 5, or even 10, year cycles.


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## john.cray (Dec 7, 2016)

AltaRed said:


> LOL..... what are you doing with month-to-month comparisons? Look at it, as a minimum, on a 12 month rolling forward basis These kinds of things can have 5, or even 10, year cycles.


I know, I know. You're right. Just a newbie mistake to focus on the details and day-to-day changes.
Here's my pack - feel free to give suggestions and constructive criticism.


```
CNR - Industrial
TD  - Financial
BNS - Financial
ENB - Energy
IPL - Energy
EMA - Utilities
BCE - Telecom
MRU - Consumer Defensive
```
Each sector is equally weighted. When there's more than one stock per sector each of them also holds equal weight within the sector.
I keep REITs separately.


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## AltaRed (Jun 8, 2009)

Remember XIU is not equal weight by sector. Hence your pack won't track XIU at all. You would have to look at the performance of each sector YTD to see why you are 'behind' for this nanosecond in time.


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## Ag Driver (Dec 13, 2012)

Deleted.


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## john.cray (Dec 7, 2016)

AltaRed said:


> Remember XIU is not equal weight by sector. Hence your pack won't track XIU at all. You would have to look at the performance of each sector YTD to see why you are 'behind' for this nanosecond in time.


You're right. For sure. Having differently balanced sectors (equal vs market-cap company size) is part of this strategy that I like.
Here are some backtesting results for those who might be interested:

1. My above portfolio
2. If we replace IPL with TRP for longer interval we get the following

But ... past performance vs future returns, etc ...


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## AltaRed (Jun 8, 2009)

Ag Driver said:


> How should one re-balance with new money?
> 
> Wait until you can re-balance every stock in the 6-pack or re-balance one at a time as the funds come in (say a minimum of $1000/purchase to keep commission under 1%)


I would not get pedantic about 'equal', because they will never be equal. Perhaps a +/-10% variance. Re-balance with new money and pick one at a time. I'd be more inclined to pick $2k as a minimum purchase, but it obviously depends on rate of funds available and how often. If one is contributing $10k per year, then 10 purchases @ $1k per year might be what one needs to do. At $20k per year, I'd still prefer 10 purchases @ $2k per year. 

Anecdote: The smallest purchase I've made in the last 15 years or so is the annual TFSA contribution. Otherwise, I tend to be $15k-50k per individual stock purchase.


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## like_to_retire (Oct 9, 2016)

john.cray said:


> I know, I know. You're right. Just a newbie mistake to focus on the details and day-to-day changes.
> Here's my pack - feel free to give suggestions and constructive criticism.
> 
> 
> ...


Those all look good John.Cray, but why stop with those 6 sectors? 

You're only missing Consumer Discretionary and Financial non-bank. 

This would give you the 8 Canadian sectors, minus Health Care, IT, and Materials that are too volatile and poorly represented.

Consumer Discretionary could be simply Canadian Tire (good time to get in while it's down) and Financial non-bank could be SLF (SunLife) or MFC (Manulife) or heaven forbid POW/PWF.

This would lower your risk a bit as it would give you 10 stocks in 8 sectors. 

My portfolio uses these 8 sectors equally represented with 3 stocks each (24 total).

My spreadsheet can compare at any time, how my portfolio is doing in relation to the S&P/TSX 60 by examining each sector index in XIU and comparing the performance YTD by weight in the index against my equal weights of only 8 sectors compared to its 11 sectors. (I consider financial to be 2 sectors consisting of bank and non-bank). This gives a quick check on which sector is outperforming in relation to my equal weight portfolio. So for example, you have to resolve that the index has 20% weight in energy and you may perhaps have 10% weight in energy, so if energy does well, the index does better than you by weight.

If you are handy with spreadsheets, you could do the same thing and then it becomes very obvious at any time during the year why you're killing the index or lagging behind. 

Myself, I only represent energy with pipelines, so when actual oil does well, I lag a bit in that sector, and since it only represents 12.5% in my system (1 of 8), and it's higher in the index, then oil can supercharge the index. Same applies to materials.

Here's the individual sector indexes.

S&P/TSX Capped Financial Index
S&P/TSX Capped Energy Index
S&P/TSX Capped Telecommunication Index
S&P/TSX Capped Utilities Index
S&P/TSX Capped Consumer Discretion Index
S&P/TSE Capped Consumer Staples Index
S&P/TSX Capped Industrials Index
S&P/TSX Capped Materials Index
S&P/TSX Capped Information Tech Index
S&P/TSX Capped Health Care Index

Anyway, I see nothing wrong with wondering how you're doing at any second in time.

ltr


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## john.cray (Dec 7, 2016)

Thanks ltr. It's very informative. I'll consider the other two sectors again and run some more backtests.


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## Ag Driver (Dec 13, 2012)

Deleted.


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## redsgomarching (Mar 6, 2016)

Argonaut said:


> Hey folks.
> 
> My 6-Pack had a 2.75% return in 2018. Not as good as in past years, but when compared with the XIC return of -8.71% it looks pretty good. With the alpha of ~11.5%, the outsized performance of this simple strategy continues, because I avoid the junk on the TSX.
> 
> ...


given the US & Canada's stance on Huawei and 5g, what do you think still about Telus? I know they are invested in the 5g infrastructure. would you still find it a viable option for a long hold?


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## nobleea (Oct 11, 2013)

Completely random aside, but this was the most recent thread that referenced SPY.

https://www.bloomberg.com/news/arti...1-kids-with-250-billion-riding-on-their-lives

"The fate of the world’s largest exchange-traded fund rests on the health of a group of twenty-somethings.

Thanks to a quirk in the legal structure used to set up the SPDR S&P 500 ETF Trust, known as SPY, more than $250 billion rests on the longevity of 11 ordinary kids born between May 1990 and January 1993."


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## Ag Driver (Dec 13, 2012)

Deleted


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## humble_pie (Jun 7, 2009)

nobleea said:


> "The fate of the world’s largest exchange-traded fund rests on the health of a group of twenty-somethings.
> 
> Thanks to a quirk in the legal structure used to set up the SPDR S&P 500 ETF Trust, known as SPY, more than $250 billion rests on the longevity of 11 ordinary kids born between May 1990 and January 1993."




i guess americans can't avail themselves of that wonderful quirk in british common law for trusts which limits the lifetimes of milliions of trusts to the death of the last descendant of a living british monarch.

there are countless trusts still running that depend upon the death of the last descendant of his late Majesty King George V of england. Then onto the death of the last descendants of George VI.

the current queen of england is a millennial trust generator. She'll have descendants for centuries to come. Note that the descendants don't have to be born by the date of trust creation. The reference is only to the monarch who has to be upon the throne. Trusts whose winding-up termination dates depend upon the death of the last blood descendant of Elizabeth II of england will probably outlast the planet.

it's surprising that yankee ingenuity didn't figure out some US equivalent to this.


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## humble_pie (Jun 7, 2009)

Ag Driver said:


> Hi Argo,
> 
> Any updates for 2020? I'm going to be re-balancing the 6-pack with new money throughout 2020.
> 
> Also, do you have a blog of some sort?




just glancing at the 6-pack (now a 12-pack) list of holdings as reported posts #43 & 67 & considering their prices today, they look oversold. Those are quality stocks but some are dizzyingly toppish one could say. That's because so much money has gone into the senior moated high dividend payors over past couple of years. Demand for the 6-packs has been insatiable. I hear there are more dividend mutual funds & dividend pooled funds scheduled to launch in january 2020.

me i don't mind topping up some existing holdings in order to raise the ACB. But i'm also putting more than 50% spare extra cash into very safe short-term FI (i have a narrow definition of FI, for me it's investment grade bonds & insured GIC/HISA only).


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## dubmac (Jan 9, 2011)

I agree - most of those are very highly priced. 
The last 2 yrs of TFSA contributions are sitting in cash - likely should have bitten in Dec 2018 on the decline.
Oh well...
Like santa at Christmas, we have the list on the 6-12 pack - but will santa deliver anything this Christmas?


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## like_to_retire (Oct 9, 2016)

humble_pie said:


> ......so much money has gone into the senior moated high dividend payers over past couple of years. Demand for the 6-packs has been insatiable.


Do you see this changing over the next 5 years? I don't.

ltr


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## hfp75 (Mar 15, 2018)

IF... Canada falls into recession in the next year then things could change...

The desire for income will surely not change but other economic factors that influence valuations might...


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## humble_pie (Jun 7, 2009)

like_to_retire said:


> Do you see this [investor demand for senior hi-dividend payors] changing over the next 5 years? I don't.




from inside canada things will perhaps not change until finally enough people come to realize that The Emperor Has No Clothes.

however from outside canada the global macro-politick looks like a tinderbox. There's a worldwide energy glut while trade opportunities are shrinking by the day. This does not look like a highway to expansion & prosperity.

so far it's a war of words here plus explosions of brutal warlettes there. But sooner or later malaise has to reach even the most isolationist of nations. 


_no man is an island entire of itself ...
never send to know for whom the bell tolls
it tolls for thee_


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## Eder (Feb 16, 2011)

like_to_retire said:


> Do you see this changing over the next 5 years? I don't.
> 
> ltr



A recession will only put a small dent into the gains of previous years...unless of course you didn't invest...


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