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By Dale Roberts, cutthecrapinvesting
Special to the Financial Independence Hub
It’s a trade-off. I hold a concentrated portfolio of Canadian stocks. What I give up in greater diversification, I gain in the business strength and potential for the companies that I own to not fail. They have wide moats or exist in an oligopoly situation. For the majority of the Canadian component of my RRSP account I own 7 companies in the banking, telco and pipeline space. I like to call it the Canadian wide moat portfolio.
Like many Canadian investors I discovered over the years that my Canadian stocks that pay very generous dividends were beating the performance of the market. You’ll find that market-beating event demonstrated by the Beat The TSX Portfolio. Eventually, I moved to the stock portfolio approach.
Over longer periods you’ll see that BTSX beat the TSX 60 by 2% annual or more. And as always, past performance does not guarantee future returns.
For the bulk of my Canadian contingent I hold 7 stocks.
Canadian banking.
Royal Bank of Canada, Toronto-Dominion Bank and Scotiabank.
Telco space.
Bell Canada and Telus.
Pipelines.
Canada’s two big pipelines are Enbridge and TC Energy (formerly TransCanada Pipelines).
My followers on Seeking Alpha or Cut The Crap Investing readers will know that I also own Canadian energy producers, gold stocks and gold price ETFs (holding gold) and the all-in-one real asset ETF from Purpose. I also own Canadian bonds and bitcoin.
We hold our cash with EQ Bank.
Related reads:
Investing in Canadian telco stocks.
For the U.S. component there is a basket of U.S. stocks. Here’s an update of our U.S. stock portfolio. That portfolio continues to provide impressive market-beating performance.
The performance update
Here’s the Canadian wide moat 7 from 2014 vs the TSX Composite. I slightly overweight to the telcos and banks. For demonstration purposes the portfolio is not rebalanced. When reinvesting I usually throw the money at the most beaten-up stock. That would be a reinvestment idea that seeks value and greater income, the general approach of the Beat The TSX Portfolio.
Annualized returns and volatility
The Canadian Wide Moat 7 has delivered greater total returns and with less volatility and drawdowns in corrections.
And of course the portfolio dividend income is more than impressive. I did not create portfolio exclusively based on the generous and growing income, but it is a wonderful by-product. The following is based on a hypothetical $10,000 portfolio start amount. The starting yield is above 4%, growing towards a 9% yield based on the 2014 start date.
In the above, the dividends are reinvested. For example, the Telus dividend is reinvested in Telus. While I will take a total return approach for retirement funding, the generous portfolio income contribution will add a dimension that will help reduce the sequence of returns risk.
The Canadian wider moat portfolio
I know the concentrated portfolio can face criticism (rightly or wrongly). Certainly, don’t try this at home based on what this guy does. Given the concentration risk I did expand the wide moat list for readers on Seeking Alpha. I had offered up the Canadian railways and grocers. That is a nice combo of industrials and more defensive consumer staples. Continue Reading…
