I think we can safely say we are now almost four years into the most disrespected bull market in history, to borrow a phrase from Alexander Green. In a recent roundtable in The Wall Street Journal, the moderator opened the discussion by saying, “It’s been another very difficult year for investors.” Um, really? US stocks were up over 16% in 2012, and international equities did even better. If that’s a difficult year, I can’t wait for an easy one.
Indeed, last year was much kinder to investors than 2011, when the Complete Couch Potato returned just 2.36% and most of my other model portfolios did worse. In 2012, all of the model portfolios delivered remarkably similar performance, with returns between 8% and 9%.
The data below were gathered from fund websites whenever available: otherwise I used Morningstar. Returns for US-listed funds are expressed in Canadian dollars. Consider these unofficial results: when I have all the necessary data I will update the long-term Couch Potato performance report card. [Note: The updated report card is now available.]
Global Couch Potato (Option 1) | |
iShares S&P/TSX Capped Composite (XIC) | 6.9% |
iShares MSCI World (XWD) | 13.5% |
iShares DEX Universe Bond (XBB) | 3.3% |
8.1% | |
Global Couch Potato (Option 2) | |
TD Canadian Index – e (TDB900) | 6.9% |
TD US Index – e (TDB902) | 12.6% |
TD International Index – e (TDB911) | 15.5% |
TD Canadian Bond Index – e (TDB909) | 3.1% |
8.2% | |
Global Couch Potato (Option 3) | |
RBC Canadian Index (RBF556) | 6.4% |
RBC US Index (RBF557) | 11.8% |
RBC International Index (RBF559) | 16.4% |
TD Canadian Bond Index – I (TDB966) | 2.8% |
8.0% | |
Complete Couch Potato | |
iShares S&P/TSX Capped Composite (XIC) | 6.9% |
Vanguard Total Stock Market (VTI) | 13.4% |
Vanguard Total International Stock (VXUS) | 15.2% |
BMO Equal Weight REITs (ZRE) | 18.1% |
iShares DEX Real Return Bond (XRB) | 2.4% |
iShares DEX Universe Bond (XBB) | 3.3% |
8.7% | |
Yield-Hungry Couch Potato | |
iShares S&P/TSX Cdn Div Aristocrats (CDZ) | 9.0% |
iShares DJ Canada Select Dividend (XDV) | 8.8% |
iShares Global Monthly Adv Dividend (CYH) | 9.5% |
BMO Equal Weight REITs (ZRE) | 18.1% |
iShares S&P/TSX Preferred Stock (XPF) | 11.1% |
iShares DEX HYBrid Bond (XHB) | 8.7% |
iShares Advantaged US High-Yield Bond (CHB) | 13.0% |
iShares Advantaged Canadian Bond (CAB) | 3.0% |
8.5% | |
Über-Tuber | |
iShares Canadian Fundamental (CRQ) | 9.8% |
iShares S&P/TSX SmallCap (XCS) | -2.6% |
Vanguard Total Stock Market (VTI) | 13.4% |
Vanguard Small Cap Value (VBR) | 15.7% |
iShares MSCI EAFE Value (EFV) | 14.5% |
iShares MSCI EAFE Small Cap (SCZ) | 16.8% |
Vanguard Emerging Markets (VWO) | 15.8% |
SPDR Dow Jones Global Real Estate (RWO) | 21.9% |
BMO Mid Federal Bond (ZFM) | 2.8% |
BMO Short Corporate Bond (ZCS) | 3.6% |
9.0% | |
Hi Spud,
Being a numbers and details guy, I noticed you report the XBB return for 2012 as 3.3%, but I had reported it as 3.0%:
http://www.michaeljamesonmoney.com/2013/01/evaluating-my-2012-economic-predictions.html
So, I started looking for the reason for the difference. My best guess is that you used closing values from the first and last trading days of 2012 (2012 Jan. 3 and 2012 Dec. 31) and added dividends. I used closing values from the last trading days of 2011 and 2012 (2011 Dec. 30 and 2012 Dec. 31) and added dividends. If I’m right about how you computed the returns, I think you’re missing the gains/losses over the trading break and the first trading day each year. These gains/losses are real and may be small in most years, but will result in accumulating differences between actual returns and reported year-over-year returns.
Cheers,
Michael
@Mike: Actually, I just used what’s reported on the iShares site. They report the 2012 return as 3.26%, and I’ve just rounded everything to one decimal place.
http://ca.ishares.com/product_info/fund/performance/XBB.htm
The discrepancy may be because ETF returns can be reported on both a NAV basis and a market value basis. I prefer using NAV because it’s more consistent when comparing ETFs from different providers (iShares used to report only NAV, not both). Your technique would give the market value return.
Thanks for the explanation. It seems that all charts and other reported returns for XBB on the iShares site are based on NAV. They report premium to NAV for some of their ETFs, but not XBB. They report XBB’s 10-year NAV return to be 5.73% per year, or 74.6% cumulatively, but historical prices for XBB on Yahoo (http://finance.yahoo.com/q/hp?s=XBB.TO&a=10&b=24&c=2002&d=00&e=11&f=2013&g=d&z=66&y=0) indicate a cumulative total return of only 62.7%. This means the premium has decreased by (1-1.627/1.746)=6.8% in the last 10 years. Is this plausible? Maybe XBB used to trade at a premium and now market forces keep the market value close to NAV?
Hi Dan
returns for CDZ : 9.0 % and CRQ: 9.8 % (iShares & Morningstar)
@Eric: Thanks for that: I’ve adjusted the numbers above. iShares must have changed this recently, because these were there numbers. This is why I say the results are unofficial. The most reliable return figures are in the annual Management Report of Fund Performance, but these aren’t available until late March.
So I guess the obvious question is: are these returns good compared to managed funds?
It would be nice to know how these portfolios faired compared to more managed funds (perhaps weigh a return mean based on equity/bond exposure performance – or risk level). I suppose according to potato theory these funds should have performed (more/less) the mean of the mutual funds minus difference in management fees. – So mean +ish 1%.
Anyway, would be interesting to see.
@Trevor: There are a few places where you can get this kind of information, notably S&P, though they use aggregate data and don’t publish details for individual funds. I don’t have the computing power (or the inclination) to make exhaustive reports on actively managed funds.
@Trevor:
Take a loot at this website:
http://globefunddb.theglobeandmail.com/gishome/plsql/gis.fund_filter?pi_type=B
@Trevor: For Option 3 I was able to find the following.
RBC Canadian Equity Fund 6.1%
RBC US Equity Fund 8.1%
RBC International Fund 15.8%
TD Canadian Bond 3.5%
Total Return 7.4%
I think I am using the proper corresponding funds but could be wrong. I pulled these numbers from their websites for 2012 performance. There are so many permutations and combinations but it would be fun to build others. Too much work for one person but if everyone takes a few minutes to build one example it could be interesting.
Michael, I haven’t tried calculating it from Yahoo! Finance data but I’m guessing that the factor at play isn’t a shrinking premium but rather that ETF providers report performance on a total return basis – i.e. assumes reinvestment of 100% of all distributions at no cost. If you’re using Yahoo! Finance price data, you have to account for dividends separately and the proper way to treat them is not to simply add them in. Rather, you need to calculate a holding period return for each day on which there is a distribution and then geometrically link those holding period returns to come up with a proper and comparable time weighted return calculation.
Hi Dan H.,
Actually, Yahoo does all this work. I haven’t checked whether they do it correctly, but they do calculate “adjusted close” values that take into account dividends. So, that’s not the explanation.
How about our own portfolio’s? My core and explore portfolio returned 7.4%. I took one major hit in 2012 in my “explore” portion or I would have enjoyed a return similar to the couch potato portfolio. More proof that doing less can provide more.
Once again, the Mawer Balanaced Fund beats all the Couch Potato portfolios.
Hi Dan!
I am a newbie to Couch Potato and 2012 was my first full year in the tuber portfolio and it did wonderfully just as you report. I have the basic TD Global Couch Potato Option 2. I have also had an equivalent amount in an ING Streetwise Balanced Portfolio which I have decided does not serve me well. I can’t really tell how it did as of year end based on their online interface and they only distribute new shares at year end. Conversely TD made significant enhancements to their web site this year, and always had a tool that has allowed clients to track returns on their web site and have quarterly DRIPS. Any idea how the ING Streetwise portfolios compared? I am thinking of doubling my stake in the TD Global potato using unproductive cash by transferring from an ING RSP ISA (1.35%) and if justified, diverting further contributions intended for the ING Streewise Balanced portfolio to the Global Potato. Thoughts? Advice?
Michael, I forgot about the adjusted close. You’re right, that’s pretty accurate from what I recall so that’s not the issue. But a bond ETF with pretty liquid stuff shouldn’t deviate too much from its NAV.
The only thing that might explain it – assuming the Yahoo data are accurate – is the mandate change several years ago. You’ll notice a 10-year return for the fund in its performance tab but only about eight years on the tracking error page. The reason is that XBB had a previous life as XGX (which used to hold a single 10-year Canada bond, rolled over annually). When the mandate changed to a universe index in 2004/05 perhaps there was some deviation there but I really don’t recall for sure.
Could be worth a call to the company but before doing that I’d look more closely at the data – i.e. year by year – to see if there was one period that was off or if it’s a bit every year that just compounds into a bigger gap.
@ Jesse – Mawer Balanced certainly has a good track record but you’d have to have been lucky enough to pick that fund in advance and who knows whether it will continue to outperform (and past outperformers do not, on balance, continue to perform well by continuing to beat the odds liek Mawer has). At least with a passive indexed portfolio you know you’ll achieve the index return less the very low MER drag and any tracking error. With a similar fund made up of actively managed funds you have to be lucky enough to pick the right ones. Of course, many people need an financial advisor to keep them on course, whether they are using active or passive funds.
@Colton: Careful you don’t make a decision for the wrong reasons. The ING Streetwise Portfolios do publish monthly performance updates just like other mutual funds:
http://www.ingdirect.ca/en/mutualfunds/performancefundinfo/index.html
And I’m not sure what you mean about quarterly DRIPs. Mutual funds reinvest all dividends as soon as they are received, so there is no such thing a mutual fund DRIP. The two funds may be reporting things a little differently, but they operate the same way.
Not much difference in the rate of return for the different portfolios. Is this typical?
@Dan H.,
Good idea about comparing NAV and market return year-by-year. Here is the NAV outperformance of the market for XBB accoring to iShares data and Yahoo data:
2012: 0.23%
2011: 0.04%
2010: 0.21%
2009: -0.22%
2008: -0.08%
2007: -0.13%
2006: 0.59%
2005: 1.11%
2004: 1.81%
2003: 3.57%
It appears that something changed during 2006 that caused the market returns to better track the NAV.
@Ryan: The performances were unusually close this year. Last year they varied more because real-return bonds and real estate (neither of which are in the Global Couch Potato) performed much better than nominal bonds and stocks, respectively.
@Mike and Dan H: I’m going to look further into the market price vs. NAV issue for a future post.
@Ryan:
The difference between the 8% growth of the Global Couch Potato and the 9% growth of the Über-Tuber may be making you consider whether the extra complexity of the Über-Tuber has been worthwhile.
But consider that $100,000 growing at 9% will turn into almost $3 million over 40 years, but growing at 8% it would turn into only $2 million. Not an insiginificant difference.
@Wendy: That’s true, but there is no way you can extrapolate a one-year difference over 40 years. Return differences over short periods can be almost entirely random and meaningless.
What was the ratio of Bonds & Equities in each portfolio?
@gil: All the portfolios are 40% bonds. The specific breakdowns are here:
https://canadiancouchpotato.com/model-portfolios/
@CCP: My point is that even a small increase in annual expected return really will make a huge difference over a long period. This is what may make the complexity of the Über-Tuber portfolio worthwhile over the long term.
@ Wendy – I think you are missing Dan’s point. Just because the Über-Tuber portfolio had the highest return of the Couch Potato model portfolios in 2012 does not mean it will in the future. Indeed, if you look at the past performance of these model portfolios, the ‘less complex’ Complete Couch Potato has exceeded the average returns of the Über-Tuber over the last 3, 5, 10 & 15 year time periods to 2011 by a handy margin, albeit with somewhat less volatility.
Complexity therefore does not guarantee anything, including higher returns and therefore it is not certain to be ‘worthwhile’, although it may be possible.
If we believe Fama&French, the Über-Tuber is expected to have the highest return among these portfolios, over the long term.
It’s true that the Über-Tuber’s superior 2012 performance does not mean it will outperform in the future.
But similarly, the Complete Couch Potato’s higher returns over the last 15 year time periods does not disprove the Über-Tuber’s higher expected return going forward.
Is there a Calculating Foreign Returns in Canadian Dollars spreadsheet on this website, which I can use ?
Very informative
Thank you.
@chet: No, I haven’t created one for distribution. With the formulas above it would be pretty easy to create one.
Just wondering what the return will be on portfolio #2 with an added sp216 sprott gold bullion fund allocated evenly. 20/20/20/20/20
@patrick s. Just take the % return for each fund and multiply it by the weighting. Then add them up.
TD Canadian Index – e (TDB900) 6.90%
TD US Index – e (TDB902) 12.60%
TD International Index – e (TDB911) 15.50%
TD Canadian Bond Index – e (TDB909) 3.10%
Sprott Gold Bullion Fund (SPR216) 3.30%
Total 8.28%
@al audet.
Sweet. Thanks!
Do you have the updated long term results for the “Yield-Hungry Couch Potato” portfolio?
@Bernie: No, unfortunately. See this post and comments:
https://canadiancouchpotato.com/2013/01/16/updated-couch-potato-report-card/
Thanks for the updates on your portfolios! Informative as always. I’m also looking forward to you post on NAV, since that’s an issue I know nothing about, and the discussion here is interesting.
@CCP I have just started following your post. Thank you for creating such a simple site with such extensive information. I am a beginner in investing (I have an advisor however my rrsp portfolio(aggressive) of 10k with him is -4.5% after 3 years :( (since 2010), so I thought to study investing myself and came across your site. I have converted TD Mutual fund account to e-series and wanted to ask if option 2(TD eseries) long term report card is the same as the complete couch potato model portfolio?
thank you
@NJ: Welcome to the blog. You can expect the TD e-Series version of the Global Couch Potato (Option 2) to deliver returns almost identical to the ETF version (Option 1). The difference in cost is extremely small. But these will be quite different from the Complete Couch Potato.
Hi just found out about the site and after spending a few days reading through it would like to go with the index funds at RBC. Now I am stuck at the RBC as my employer and I make bi weekly contributions to a group RRSP, so it has to stay at RBC. Couple questions 1)Can I switch from my mutual funds(RRSP) to Index funds? I have approx $40,000 so far. I would do the Global couch Potato method. By the way I am 48 years of age. Any advice or help would be appreciated. Great site, will be letting friends and family know about it.
Thanks
@Winnipeg Man: Welcome to the site. A group RRSP has limited fund choices, so it all depends on your specific plan. Talk to your HR folks about which choices are available through the group RRSP and see if the list includes index funds. Many group plans do.
I am building an RRSP portfolio at TD this spring and plan on using e-series funds to avoidn fees as much as possible and add ETFs for emerging market and REIT coverage (likely BMO) while dropping the bond allocation to 20%. The TD international e-series fund covers EAFE, so it doesn’t capture some of the emerging markets, but then I see the similar returns posted over last year for the various international ETFs listed above and wonder if it is even worth adding an emerging market only fund for 10% or the portfolio and incurring fees unnecessarily. Thoughts?
@TD Investor: It really depends on the size of the portfolio. It it’s under $100K, a tiny allocation to emerging markets going to have a very small influence and probably isn’t worth it. You might find this post interesting:
https://canadiancouchpotato.com/2012/12/06/ask-the-spud-combining-e-series-funds-and-etfs/
@CCP – Hi. I posted this on another post, but since someone has asked the question on group RRSP, here’s mine.
Group RRSP – Hi CCP
I have group RRSP account (Industrial Alliance) through my employer with DPSP. I am only contributing so much to get the max benefit of employer’s contribution. How can I build a couch potato portfolio when there is only 1 index fund in each category? Mer for each fund is between $1.5 and $1.55
TD Emerald Canadian Bond Index
TD Canadian Equity Index
Global equity index ACWI (Blackrock)
International equity index(Blackrock)
US equity Index (Blackrock)
Sorry, if I posted this question in the wrong place.
Thank you
@NJ: Not sure how to answer beyond stating the obvious: just pick an index fund in each of the asset classes: bonds, Canadian equities, US equities and international equities. Use an allocation similar to those in my model portfolios, or add more bonds or less bonds according to your risk profile.
Are you sure the fees are over 1.5%? That’s absurd for an index fund.
Hey CP.. the long term performance report card in the link above is incorrect!
It says the 3 year global couch potato ETF is 7.43%, complete couch potato..not correct.
However, when you go to the model portfolio tab and get the performance report card from there, the returns are more accurate. 5.57% for ETF global patato.
Seems like you left the link to the old or incorrect report card, but this is the first thing that comes up when you google couch potato returns. (could be misleading.)
@Jungle: The link is not incorrect: the report card clearly states that the performance period ends in 2011, because the 2012 figures were not available when this post was published. I’ve added a link to the update in case others are confused.
Thank you for your response.
@CCP – you asked “Are you sure the fees are over 1.5%? That’s absurd for an index fund.”
Unfortunately yes!! And this is the lowest of the MERs I have seen. Majority of their funds (non index) MER are between 1.5% and 2.180%.
@NJ: If you also have a self-directed RRSP, you may want to hold most of your portfolio there so you can take advantage of lower fees. You might, for example, use the group plan to hold only your international equities (since this is the most expensive asset class anyway), and then hold your bonds and Canadian and US equities in your self-directed account. That way you can still take advantage of the company match and keep your overall costs down.
Just make sure your overall asset allocation is where you want it to be.
Thanks @CCP. I think this is a great suggestion which I would have not thought of :). Thank you. I will look into it. I do have TD e-series RRSP account which I just started and I am following CCP model portfolio. I will now look into what international equities does Industrial Alliance offer and also study CCP site to get some insight into what to pick.
I am using VCE, VTI, VXUS, and VAB at 23/23/23/31 ratios. I am wondering about your thoughts on avoiding the currency exchange costs for VTI and using VFV or VUS instead and also changing VXUS to VEF (18%) and VEE (5%). What are your thoughts on currency hedging ETFs and will I miss out on any future gains to the US dollar if I use currency hedged ETFs to the Canadian Dollar? Thank you.
@BH: I think using something like VFV or VEE (both are unhedged) are fine if you are not able to avoid currency exchange fees. But in most cases I recommend avoiding currency hedging, as it creates a significant drag on returns over the long term. Canadian Capitalist has written pretty extensively on this:
http://www.canadiancapitalist.com/why-currency-hedged-funds-have-large-tracking-errors/
http://www.canadiancapitalist.com/the-costs-of-currency-hedging/
http://www.canadiancapitalist.com/comparing-currency-hedged-and-unhedged-holdings/