Smith Manoeuvre Portfolio Update – April 2010

For those of you just joining us, below is my portfolio that is leveraged with money borrowed from my home equity line of credit (HELOC). As the money borrowed is used to invest, the interest charged is tax deductible. I write an update every so often to show new positions added along with any market gains/losses. For more details on the strategy and procedure, check out my modified smith manoeuvre strategy and my comparison of online stock brokers.

As a common theme among my portfolios across all accounts, there has been very little buying as of late as most strong dividend stocks seem fully valued and in some cases over valued. I typically only buy when I notice that a security is selling at prices that are attractive (when to buy dividend stocks).  Even with current valuations, I noticed that some of the oil and gas operators were being sold off and potentially etching out a bottoming formation.  I’m a long term oil bull, so I picked up some more Husky Energy (HSE) for this portfolio and some Exxon Mobil (XOM) for another.

My dividend watch list hasn’t changed since my last report.  I am looking to increase my position in T.BMO, T.TD, T.ENB, T.FCR and new positions in T.CNR and T.L when their valuations become attractive.

The Portfolio as of April 2010:

Stock Symbol Shares Avg Buy Price Total Div/Share Yield
Royal Bank RY.T 75 $47.62 $3,571.25 $2 4.20%
CIBC CM.T 45 $67.14 $3,021.25 $3.48 5.18%
Power Financial PWF.T 105 $35.14 $3,689.65 $1.40 3.98%
Scotia Bank BNS.T 105 $41.91 $4,400.52 $1.96 4.68%
Manulife Financial MFC.T 125 $33.12 $4,139.48 $0.52 1.57%
Fortis Properties FTS.T 150 $25.63 $3,843.98 $1.04 4.06%
TransCanada Corp TRP.T 100 $33.50 $3,349.74 $1.52 4.52%
AGF Management Limited AGF.B.T 50 $22.71 $1,135.49 $1.00 4.40%
Bank of Montreal BMO.T 25 $44.17 $1,104.24 $2.80 6.34%
Husky Energy HSE.T 135 $32.53 $4,391.27 $1.20 3.69%
TD Bank TD.T 50 $48.24 $2,412.23 $2.44 5.06%
Enbridge ENB.T 40 $37.36 $1494.39 $1.48 3.96%
TransAlta TA.T 50 $21.47 $1073.49 $1.16 5.40%
First Capital Realty FCR.T 100 $15.75 $1,574.99 $1.28 8.13%
Canadian Utilities CU.T 50 $36.40 $1,819.99 $1.41 3.87%

More Stats

  • Total Cost Base of Equities (inc. fees): $41,161.94
  • Market Value of Equities (April 1, 2010): $45,414
  • Total Dividends / Year: $1,774.10
  • Portfolio Dividend Yield: 4.31%

Sector Allocation (based on market value)

  • Financials:    56.05%
  • Utilities:    17.46%
  • Energy:    21.62%
  • Resources:    0.00%
  • Real Estate:    4.87%
  • Other:     0.00%

In my last SM portfolio update in late 2009, the portfolio just about broke even. With the market rally continuing its upward trend, my portfolio is finally showing a profit.

With regards to sector allocation, you may notice that this portfolio is fairly concentrated in financials.  Note though that this is one of my accounts where I treat all of my accounts as one big portfolio.  In other words, my international and other sector equity exposure are in other accounts.

Leveraged Investing Disclaimer: There have been a lot of readers who have mentioned that they are interested in a leveraged portfolio.  Over the long term it may be lucrative.  However, over the short term, equities are volatile and can put the portfolio deep in the red.  My portfolio over 2008 is a prime example of what can happen.  If you can’t stomach losing 20-30% in the portfolio in any given year, then your risk tolerance isn’t suited for leveraged investing.

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FT

FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
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Kevin
9 years ago

FT- thanks for your sharing. I have just started using the similar strategy. However, my portfolio is mainly consisted of US stocks with reasonable dividends payouts. I also write the covered call on my portfolio to provide extra income monthly. I wonder if the option premium that I am collecting is considered to be regular income?

cannon_fodder
11 years ago

FT – Just saw that Teck announced reinstitution of a dividend. It isn’t much (less than 1%) but its certainly a little ahead of when I thought it would happen. I’m sure as things continue on a solid footing they can increase it to something around 4%.

cannon_fodder
11 years ago

FT – Sorry for the delay in responding. I have crafted a “4 year plan” at the end of which our HELOC will still be very significant – probably close to 50% of the estimated projected value of the house.

We would sell our house and pay off the HELOC completely because our working premise is to leave Canada and retire in Central or South America.

Al
11 years ago

Did you ever consider using HBP alongside borrowing to invest to get little extra back? If this is your first property why not take 25k out of your RRSP to add to the down payment of house thus reducing your mortgage amount and then borrow 25k right back on LOC for investing purposes. This way you don’t lose any growth on the 25k you took from your RRSP. In my view you get 25k no interest loan over 15 years (from RRSP), which reduces your mortgage (non deductible) while you invest borrowed 25k (deductible interest) into equities of your liking. It is like supercharged SM :). I don’t see drawbacks to this even if you don’t like being leveraged.

As for current market, I found maybe 2 “bargains” in Canada currently that are paying dividends. Whoever commented above that you can buy & hold long term and you will eventually come out ahead i disagree. You should revise your thinking and buy when equities are cheap and hold :).
If you bought tech just before the crash, you will hold another 150 years before you get your money back :)

Cheers

Al

Rob
11 years ago

Hi FT, I’m a big fan of your blog.

I’m considering the SM for my first property. Although it will be another year before I’m in a position to buy. In the mean time I would like to do a ‘trial run’ – (in a sense).

I opened up an unsecured line of credit in order to purchase shares of my employer’s company. Roughly 2/3 of the LOC still remains, and I would like to invest it into a portfolio of blue chips with good dividends.

My question is: If I were to hold these investments in a TFSA account, would the LOC interest still be tax deductable? Or would I be better holding it in an unregistered account?

DogsFan
11 years ago

I own 100 shares of Telus and 100 shares of BCE (purchased last July). Both are up about 30% since then, however the new competition may be an issue longer term.

Telus should be the more resiliant of the two, especially with the addition of TELUS TV, which should have decent market penetration in the West. Still more growth potential for them…maybe not so much for BCE and RCI.

It’s interesting to see some of the disparity between portfolios from western and eastern Canadians. We don’t hear much about FTS, EMA, or PWF out west. Probably the same for you with regards to Telus, Shaw, or TransAlta. I guess it’s different when the companies are doing business in your backyard…you know them a bit better than just reading the fundamentals.

MS Save Money
11 years ago

I might have to consider buying the investments in your portfolio! I would totally stick it out for a long time if it has a promising future.

cannon_fodder
11 years ago

FT,

Congratulations on sticking to the plan and going positive. When you factor in the tax refunds you are even more ahead than at first glance.

My worst performer in my SM portfolio continues to be Manulife. It is still down 36% from where I purchased AND it slashed its dividend. I have been tempted to sell it at a loss to offset capital gains. My only other holding underwater is AGF which has shown strength in line with the market and is down almost 12%.

My best performer by a long shot is TCK.B. It is up 322% and I’m hopeful an announcement in 2011 of dividend payments to resume will only help the stock.

My portfolio is up 34% on capital appreciation with another 6%+ for dividends for around 40% improvement (not annualized).

When our mortgage is retired at the end of this year, we will start paying down the HELOC aggressively.