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Beat the TSX

3.7K views 35 replies 15 participants last post by  Sam Sun  
#1 ·
Anyone using the BTSX strategy? I'm thinking about using it in my RRSP for income. I'm 66.

I just checked it against the S&P 500 index. Since 1987 BTSX total return is 12.40% vs the S&P 500 index at 12.31%.

I'd be using about 10% of my portfolio for this, the rest is in VOO and VFV. Investing in S&P 500 index funds is a great way to grow your money in the accumulation phase of your life, but not so great for income as the dividend is only about 1%. So selling shares is what you need to do if you want income. I don't want to get caught having to sell into a down market.

BTSX Seems like a good way to get income and good growth without having to do that.

Opinions?
 
#2 ·
Since 1987 BTSX total return is 12.40% vs the S&P 500 index at 12.31%.
It appears some "cherry picking returns" might be taking place here or just a timing fluke.

Beating the TSX - finiki.
A 3-year rolling-return analysis of BTSX from 2003 to 2018, offset by one month, reveals that the median backtest barely beat the market. Starting on the wrong month would have underperformed the TSX market by up to -34%. A lucky start month would have delivered an excess return of 48%
 
#3 ·
I have read the BTSX strategy over the years only in the Money Saver magazine. It doesn't always beat the TSX, and if it did, don't you think every hedge fund would be taking advantage of this and arb that opportunity away? :)

Your numbers indicate only a basis pts difference of 9.

That does't even pay for commissions and slippage you'd have to keep doing.
 
#5 ·
I think XIC (the TSX index) is a pretty good way to invest in the Canadian stock market.

I've been doing stock picking for several years, and even with some very strong wins, my performance only slightly exceeds XIC. Considering how much extra work I've had to do for that outperformance, it might be easier to just go with XIC.
 
#6 ·
The biggest difference is the ability to actually get all the gains the investment strategy might provide. You see XIC will never underperform the index, especially not for many years in a row. Therefore it is easier to keep with it. The problem with BTSX is that we tend to look at these many year backtests and forget all the days or quarter ends that the strategy chart is illustrating and how it would be like to experience that. Sure, we can all look at the final result and salivate about the money we make but put yourself in the shoes of the BTSX investor at the beginning of 2008. This wonderful plan that has no future guarantees certainly would look broken. 3 years in a row. 12 quarters of struggling results when measured against a simple buy XIC and hold strategy, that outperformed it for 3 straight years. How many investors are going to stick with it. Think about the BTSX investor in early 2000. Not only did his strategy underperform in 1998 but look how pathetic is was in 1999. That pathetic performance went on for the entire year.

My point is that most people will not follow these backtested strategies because a backtest does not guarantee future performance and the future is a long time. A strategy that is known to have multiple underperforming years, which almost all do, will be very difficult for a person to follow. Remember these people are performance chasers. That is the sole reason they are in it. 3 years of underperformance and that strategy is will almost certainly be replaced by another strategy that will look so much better at that time, or they will start to tweek this one, etc. That is the real investing world. The chart above is just an interesting illustration for most investors and another reason for active management underperformance for the few investors that get greedy and try to invest in it.
 
#7 ·
Anyone using the BTSX strategy? I'm thinking about using it in my RRSP for income. I'm 66.
The BTSX strategy focuses on the highest-yielding stocks in the TSX. Approximately half the return should come in the form of eligible dividends.
As such, the RSP is probably not the best place to use this strategy because the dividend tax credit will be lost.

If you have no unregistered investments to invest for dividends, then I concur with James -- stick to XIC or a similar ETF. Shifting just 10% of your portfolio is not going to move the needle in terms of performance.
If what you desire is automated cash flows then simply set that up -- every quarter sell 1% of your holdings. Voila, a 4% yield!
 
#8 ·
Nobody I know follows BTSX as the approach as laid out, since selling and buying every year can be expensive and filled with behavioural issues.

That said, over decades, the approach does work but I don't know anyone that does just this approach in practice.

I own XIC/XIU/BTSX stocks directly and prefer not to trade them.

When in doubt for CDN stocks, and you don't want to pick them, XIU/ZCN/VCN/XIC is more than fine IMO.
 
#9 ·
Well, it seems to me year after year there are only 1-3 stocks that change, which means 3 sells and 3 buys. Even at 9.99 per trade that's less than 60 dollars. Unless I'm missing something about rebalancing the 10 stocks at the end of each year?

BTSX is a simple rules based stratagy. One can only expect it to work if the rules are followed! If everyone, including Matt, the guy who is running the informational site about it now, is breaking the rules, then they can't say whether or not it's working because they aren't following it! I've heard interviews with Matt where he says things like he likes it because it's rules based, then in the same interview he explains that he doesn't follow the rules and encourages others not to follow the rules also. It's very contradictory and makes no sense. If you don't want to follow the rules then just buy a basket of dividend stocks of your own choosing and hold them forever.
 
#10 ·
Well, it seems to me year after year there are only 1-3 stocks that change....
That's true, but the problem isn't the insignificant trading costs, rather, that you continually trigger capital gains every year on the sales. Over time your book continues to rise on the entire portfolio with the subsequent taxes to be paid each year. That's cash you could have used to invest.

In a buy and hold scenario, yes, you pay the tax on the dividends, but you don't on the capital gain portion. This is an advantage over time.

ltr
 
#11 ·
And with stock like CNR, ATD, CSU, one gets to defer most taxes for 10-30 years or more. I've never seen the value of strategies like BTSX, at least in non-registered accounts. Why pay taxes before one needs the asset? Some of us have entire portfolios where unrealized gain is 100% or multiples thereof of our cost basis of the entire portfolio.
 
#12 ·
The BTSX stocks are not geared towards capital growth and likely won't produce as much CG tax over the years like many other stocks. So if one can benefit from better dividend tax treatment if might be a benefit to them.

As with all tax now vs tax later comparisons it is a very individual thing. Sitting on massive CG taxes at retirement many not be a good thing for some.
 
#13 ·
My preference would be to be sitting on massive unrealized cap gains at death. Highest combined MTR for cap gains in BC is 26.75% (before the change to 67% inclusion rate in which case my arithmetic says ~36%). My beneficiaries can live with that.
 
#15 · (Edited)
I am happy to crystallize cap gains and dividends as I decumulate. I am somewhat indifferent to the mix.

Added: What I do not really want is annual investment income to exceed my annual needs (including gifting) because that means paying more tax prematurely than one should. I'd like to control the 'just right' scenario to crystallizing just enough to balance outgoing cash flow.
 
#16 ·
I have not given a lot of consideration to capital gains tax implications on decumulation. The main 2 reasons are:

1) All of my stock investments are in tax favourable accounts so will be taxed as income when withdrawn.
2) I am many years away from decumulation so am mindful that taxation legislation may change. Ex. the current cap gains legislation introduced this year.

That being said my inclination will be a goldilocks approach by crystalizing gains along the way with the emphasis to delay the bulk as long as possible without forgoing needs and some wants. My rationale is that over time the tax brackets should creep up over time allowing me to keep more money for longer in my hands instead of the government.

As I inch closer to retirement taxation will be an important part of planning.
 
#18 ·
With the stroke of a pen, the government can and will do anything it wants.

I agree, more taxation headaches are likely to come for taxpayers.

I personally like a mix of dividends and capital gains in my taxable account to be strategic while meeting my (growing) income needs.
 
#19 ·
Coming back to this thread to talk about the BTSX, this guy says one could simply use XDIV as a proxy.

Interestingly, XDIV has barely beaten the market since its inception 7 years ago.

So one could also doubt the outperformance of BTSX which is sensitive to many variables.

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#20 ·
Your one-fund solution, IMO for folks that don't want to invest in Canadian stocks = XIU. You get growth, dividends and it is tax-efficient.

You could tinker a bit with ZLB as well for low-vol. Check out those returns.

The top positions in XDIV are the same stocks most DIY stock investors own in Canada anyhow: banks, pipes, lifecos and utilities. There are only 20-30 stocks worth owning for dividends in Canada - everything else is a potential growth play: ATD, WCN, CNR, CP, BN, SHOP, as key examples.
 
#21 ·
FWIW, my ex who has zero interest in DIY stock picking thus holds both XIU and XDIV in her portfolio for her Canadian equity component. XIU in particular has been held for a long time and I suspect she will still own them when her POA and/or her Executor takes over or crystallizes them in 5 or 15 years. XIU should provide more 'total return = growth' than does XDIV, the latter of which provides disproportionate dividend income. Her portfolio is designed to essentially track markets while at the same time giving her the investment (dividend) income to be oblivious to the financial markets. Her portfolio is on auto-pilot.
 
#22 ·
I find it interesting that morningstar has a strong sell rating of 32 on XIU. They like XDIV and ZLB and have buy ratings on both. Morningstar gives XDIV a 99....very strong buy. I wonder why morningstar would have such a dislike for XIU?
 
#23 ·
I find a lot of Morningstar recommendations unusual, or at least counter-intuitive. In this particular case, it may well be a belief that value (dividend) stocks stand to shine with money rotating out of momentum growth stocks. I don't give Morningstar recommendations much attention, i.e. no more than any other analyst.
 
#24 ·
I wish I had your confidence Alta. I do lots of research and use the tools I have available to me to make my decisions. I am starting to buy more ETF's now. I am using the ETF's as a way of investing some wins and also some losses. Your theory of growth to value stock rotation may very well be true to morningsatrs approach.
Thanks for being there for people like myself that need the help. I appreciate the time the people give to this forum.
 
#25 ·
I think a key thing is most, if not all, analysts are probably no better than 50-50 (plus or minus 10 percentage points) with their responses. The real value, when it is provided and it seldom is, is their actual reasoning for their views.
 
#27 ·
Yes, but it depends on which tab you pick. The default tab is on a time weighted basis which is fine but is not quite as good as money weighted basis. BMOIL says they started doing money weighted in 2016
Since January 1, 2016, you can also measure the rate of return of your investments using a money-weighted methodology. We’ve added this formula because the Canadian Securities Administrators (CSA) has mandated that all investment providers report money-weighted returns to their clients. Money-weighted returns take into consideration the impact and timing of all your contributions and withdrawals to your portfolio to give you a unique and more accurate performance snapshot of your wealth accumulation (or depletion).
The two methodologies would result in similar numbers EXCEPT when significant monies are added or deleted from the portfolio. The standard should always be money weighted (in my opinion) since portfolios are not usually static.

Added: My two 5 year CAGRs at BMOIL are almost exact with a difference only at the second decimal place.
 
#30 ·
Yes, but it depends on which tab you pick. The default tab is on a time weighted basis which is fine but is not quite as good as money weighted basis. BMOIL says they started doing money weighted in 2016

The two methodologies would result in similar numbers EXCEPT when significant monies are added or deleted from the portfolio. The standard should always be money weighted (in my opinion) since portfolios are not usually static.

Added: My two 5 year CAGRs at BMOIL are almost exact with a difference only at the second decimal place.
Thank you AR ! Now I can comprehend what everybody talking about beating TSX....
Just checked, comparing the 2 (time weighted vs money weighted) for my account, the difference is 0.32% in last 5 year. Don't exactly know what it means. Anyway, it is close enough for me. All I need is a ball park figure:)
 
#31 ·
My difference is 0.04% between 5 year time weighted and money weighted. I didn't expect there to be much difference because I have not, in my case, withdrawn substantially from my BMOIL account. One needs to remember these returns are account based, so if one has several accounts or more than one brokerage, then one must consolidate elsewhere via other proprietary software or a home built spreadsheet.

P.S. I wouldn't spend more than 60 seconds trying to come up with a meaning of your 0.32%. It means essentially nothing. Money weighted returns is the most appropriate way.

I might add that for benchmarking one's performance against an appropriate benchmark, one can find an index fund that approximates one's own asset allocation or build your own via Norm's Asset Mixer. The latter is the best is one is rather persnickety about being precise for benchmarking. I don't care that much about decimal points in the overall scheme of things so I tend to dismiss such precise measures.
 
#35 ·
I don't use BTSX as an investing strategy, but out of curiosity, checked the 52-week high/low stats, and surprised to see that most of them are close to 52-week highs.

The only one I own on this list is CNQ at around -12% unrealised loss.
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