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Repositioning. Yesterday my portfolio was 22% Canadian dividend stocks , 28% laddered corporate bonds along with some preferreds and the balance was in VTI the Vanguard USA total market ETFs. Today my VTI is 25% of my portfolio and the 25% has been replaced with the I Share gold bullion ETF and the Vanguard inflation protected treasuries. My rational is as follows. Covid isn't going away therefore government spending continues at a runaway pace and productivity and production will decline. At some point central banks will quit buying government debt and will be adopting tight money policies. The current free lunch cycle will end because there isn't such a thing as a free lunch. The stocks markets are in bubble state and that will end as well. This circus will end and I want diversification and better protection of my capital. The markets have been extraordinarly generous to me over the past 10 years so I believe it is time for a fair bit of caution.
 

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Discussion Starter · #522 ·
The stocks markets are in bubble state and that will end as well. This circus will end and I want diversification and better protection of my capital. The markets have been extraordinarly generous to me over the past 10 years so I believe it is time for a fair bit of caution.
I think that's very sensible. This has been an incredibly good stretch of performance (stocks are doing great) and it makes sense to be more cautious, when the goal is to protect your capital.
 

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I have been geeking out on asset allocation mixes. I find it so interesting how places like Yale, and the Canada Pension board allocate assets. Of course they have more invesment options than us average investors but in many cases there is an ETF that will work as a substitute.

A few resources about asset allocation I find interesting are:

For CPPs mix

Tiger 21 high net worth asset report
Asset Allocation Archives

Yales’ David Swenson wrote a book that translates what endowments do into something retail investors can use:
 

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Discussion Starter · #524 ·
For CPPs mix
Yeah I agree, it's pretty interesting. I've also seen some analysis that says that "private equity" can be replicated with standard market instruments. The only real different with private equity is that it's not liquid so the pricing is only partially visible (private shares are priced a different way).

Anyway, I agree, asset allocation mixes are very interesting. I think the hard part is choosing one that you like and sticking with it -- long term!
 

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Yeah I agree, it's pretty interesting. I've also seen some analysis that says that "private equity" can be replicated with standard market instruments. The only real different with private equity is that it's not liquid so the pricing is only partially visible (private shares are priced a different way).

Anyway, I agree, asset allocation mixes are very interesting. I think the hard part is choosing one that you like and sticking with it -- long term!
Hmm, can you explain me why they are doing active management instead of going passive since we can't beat the market? Why they are so low in fixed income as I thought they had to do some great risk management to keep the returns positive and keep the volatility low? And how come they don't have too much Canadian exposure as opposed to all those XBAL, XGRO, etc?

I'm confused, because every time I mention active management, risk management with very low fixed income (bonds), home-bias of XBAL, etc., well, you know how I get responded.
 

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Currently my portfolio is:

Equities: (25% total)
MAW120 - Mawer Global (active managed)
ZGQ - BMO Global High Quality (high in tech, which is OK....)
XWD - iShares World Index (dont like the MER, but like the 1,400+ corps it holds - wide diversity)
HXS - SP500 (swap, trade for free)
* Canadian 5-Pack (RY, FTS, CNR, ENB, T - 1% each)

Commodities/Gold: (25% total)
MNT - RCM Gold Reserve (20% - Like the Crown Corp and Prem/Discnt)
MNS - RCM Silver Reserve (2.5% - a bit of diversity)
BTCX.B - CI Galaxy BTC Fund (2.5% - a bit of diversity)

Cash and Bonds: (50% total - This should be 1/2 long bond and 1/2 cash)
VAB - Vanguard Agg Bond (20% - should be 50% & let it coast)
CLF - iShares 1-5 Govt Bond (10% - just to lower duration)
CBO - iShares 1-5 Corp Bond (10% - just to lower duration)
ZPR - BMO Laddered Perf Share (+/-5-10% - add yeild - almost equity - capital structure)
HYI - Horizons High Yeild (+/-5-10% - add yeild - almost eqity - capital structure)

* The ZPR/HYI were added in a while back to boost yield, in reality its not needed. Looking back they have worked well, as long as Powell is buying HY I am fine with it. I have balanced these 2 funds for tax efficiency from registered to non-registered accts.
** My average duration from VAB/CLF/CBO is a bit less (than just VAB), given the concern of inflation. It should all just be VAB and it was for a while but given the inflation concerns I felt it would be prudent to shorten maturity by just a few years.... I'd use VSB (ect) but I trade CBO/CLF for free, so no fees makes me carry the 2 for the split. Yes you can argue that I should have more govt than corp but we are starting to split hairs just a bit.
*** In my Margin and Cash accts I am using HBB for the Tax efficiency. If there was a VSB/ZSB/ect that was swap based from Horizons I would use that but alas there is not.
 

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Discussion Starter · #527 · (Edited)
I'm confused, because every time I mention active management, risk management with very low fixed income (bonds), home-bias of XBAL, etc., well, you know how I get responded.
If you're talking about the Canada Pension Plan, I think that when you get that large, you inevitably end up with a management team of people. They can -- and should -- be doing as much passive investing as they can. Really when you have a large enough, diversified enough equity portfolio, you effectively are back to index-like returns in any case.

But there is something about pensions which always attracts the active managers. It's just what happens in that business. And no, they usually do NOT add value. In fact there are countless stories of pensions which have had horrible experiences because of some hot-shot active manager or hedge fund guy. It usually harms pensions.

I know a guy at a large Canadian bank who works in a team, provides services to pensions. Over the years I have learned what his team does, and they basically spend all day ripping off pensions. It's pretty disgusting actually, but it's pretty normal in the industry. Everyone... the whole banking and hedge fund industry... prays on pensions and constantly rips them off.

Hedge funds send salespeople to visit all the pensions in the country. They pitch them bizarre, high fee products, derivatives trading, all kinds of nonsense.

@MrBlackhill it may surprise you to learn that when people become very wealthy, or if there's a huge account like a pension, they don't automatically become more efficient or more optimal investors. Often they are actually preyed on even more than you or I, because there's so much money one can take from them.

Very wealthy people, and large institutional players, are just as vulnerable to all the investor fallacies, and faulty beliefs in the power of active management, or fall for stupid strategies. A good recent example is Alberta's huge AIMCo pension manager, which made noob mistakes in derivatives and lost huge amounts of money, because they made stupid decisions and suck at trading.

Compared to how badly pensions tend to do, the CPP has actually done quite well. So it's a good news story, that they are managing our money reasonably well.

But that does not mean they are an optimal investor, and it doesn't mean the CPP strategy is better than couch potato indexing.
 

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Most agree that Indexing in public markets is often best.

Where CPP is active is in determining asset allocation and private maker deals. Because of their size and connections they get into direct and indirect investments globally that most cannot. This is where being active helps.

if you check out their annual reports they go into some interesting details.
 

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It is approaching the end of year 2021. I am planning to do some tax harvesting by selling ZFL(-14% loss by now) in my PP to offset my capital gains from stocks and cryptos. Is there any alternative long term bond ETF to ZFL that I can swap immediately? Otherwise, I plan to buy it back after 30 days to avoid wash sale. The risk is ZFL price may rise at that time but compared to 20%+ average tax rate, it's nothing. Would like to hear your opinion. Thanks.
 

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It is approaching the end of year 2021. I am planning to do some tax harvesting by selling ZFL(-14% loss by now) in my PP to offset my capital gains from stocks and cryptos. Is there any alternative long term bond ETF to ZFL that I can swap immediately? Otherwise, I plan to buy it back after 30 days to avoid wash sale. The risk is ZFL price may rise at that time but compared to 20%+ average tax rate, it's nothing. Would like to hear your opinion. Thanks.
James might be better to answer this but I have a spreadsheet of most Canadian ETF's (manually maintained so I don't know for sure if I have everything). I found the following:

ZTL BMO Long-Term US Treasury Bond Index ETF
PGL PowerShares Ultra Liquid Long Term Government Bond Index ETF
TULB TD U.S. Long Term Treasury Bond ETF
VLB Vanguard Canadian Long-Term Bond Index ETF
XLB iShares Core Canadian Long Term Bond Index ETF
ZPL BMO Long Provincial Bond Index ETF
TCLB TD Canadian Long Term Federal Bond ETF
 

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Discussion Starter · #531 · (Edited)
Is there any alternative long term bond ETF to ZFL that I can swap immediately?
That's a tough one since ZFL was kind of unique. I think XLB is the closest match, and performs most similarly. The dangerous part of doing this though is XLB has a ton of corporate credit exposure (more risk) so during a crisis, XLB could do much worse than ZFL.

Here's a chart showing that XLB and ZFL have reasonably similar performance. However, look at what happened during the covid crash, when one of them crashed.

But yes I believe you could do tax loss selling by selling ZFL and immediately buying XLB. They are not identical. And you're taking risk by doing so... tax-wise it's legitimate. However you'd probably want to get back into ZFL at some point.

Rectangle Slope Plot Font Parallel
 

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Discussion Starter · #532 ·
ZPL BMO Long Provincial Bond Index ETF
I had not seen this one before. @librahall this might be another acceptable substitute since it also performs similarly to ZFL

And if you swap ZFL <> ZPL there's probably less risk involved since provincial bonds are safer than corporate bonds.

Just double check that the name of the index they follow is different. To do this kind of tax loss selling, they must track distinct indexes, otherwise they may be considered identical properties.
 

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I had not seen this one before. @librahall this might be another acceptable substitute since it also performs similarly to ZFL

And if you swap ZFL <> ZPL there's probably less risk involved since provincial bonds are safer than corporate bonds.

Just double check that the name of the index they follow is different. To do this kind of tax loss selling, they must track distinct indexes, otherwise they may be considered identical properties.
Hi James, Thank you for sharing the info and data. After consideration, I may swap part of my ZFL with ZTL(BMO Long-Term US Treasury Bond Index ETF). For the stock part(25%) of my PP, I am using 18% ZSP and 7% XIU. It seems that ZTL can do a better job to hedge the risk of ZSP since they are both US market focused.
 

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I may swap part of my ZFL with ZTL(BMO Long-Term US Treasury Bond Index ETF). For the stock part(25%) of my PP, I am using 18% ZSP and 7% XIU. It seems that ZTL can do a better job to hedge the risk of ZSP since they are both US market focused.
I have two further questions regarding this plan:
1) ZTL is listed on NEO, a new and smaller exchange than TSX. NEO is said to be acquired by the Chicargo Cboe in first half of 2022. And ZTL's total market cap is only $61.8M with 11,837 market volumn. I am a bit concerned about the uncertainty and low liquidity...
2) BMO offered another cad-hedged ETF ZTL.F. Shall I use CAD-hedged or non-hedged for US long term bond ETF?

Looking forward to your advices. Thanks!
 

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I have two further questions regarding this plan:
1) ZTL is listed on NEO, a new and smaller exchange than TSX. NEO is said to be acquired by the Chicargo Cboe in first half of 2022. And ZTL's total market cap is only $61.8M with 11,837 market volumn. I am a bit concerned about the uncertainty and low liquidity...
2) BMO offered another cad-hedged ETF ZTL.F. Shall I use CAD-hedged or non-hedged for US long term bond ETF?

Looking forward to your advices. Thanks!
I did some research today and found the follow paper from Vanguard Canada quite helpful. It concludes -
"Fixed income provides the portfolio “ballast” that diversifies and counters equity volatility. To maintain this ability to control portfolio risk, it’s prudent to hedge international fixed income currency exposure (Philips et al., 2012). "
《The portfolio currency-hedging decision, by objective and block by block》by Vanguard

ZTL.F(CAD-hedged) seems a better choice than ZTL. However, ZTL.F's market cap and trading volumn is even smaller than ZTL. Take today for example, its trading volumn is "0".

As mentioned in my previous post, I have 18% ZSP(S&P 500 ETF in CAD) out of my 25% PP stock allocation. Therefore, I want to put some US long term gov bonds in PP to effectively counter the volatility of S&P 500.

Is there any better alternative CAD-hedged ETF to ZTL.F? TULB seems a close one but it's not CAD-hedged and its holdings are 10-year US gov bonds. I'd like to have 20-year maturaty.
 

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ZTL.F(CAD-hedged) seems a better choice than ZTL. However, ZTL.F's market cap and trading volumn is even smaller than ZTL. Take today for example, its trading volumn is "0".
The low volume and market cap are concerning. But it may not be a problem.

First, the market maker is active. I can see it is maintaining an 8 cent spread on units bid/asked at $52.13/$52.21. This seems reasonably tight -- it's only about 8 basis points from the midpoint. If you have to sell, this is peanuts as trade friction.

Second, BMO is one of the biggest ETF sponsors. I doubt they will close this fund recklessly.

If the ETF meets your needs, I wouldn't necessarily disregard it.
 

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This is posted in today`s Globe & Mail. I only skimmed it but though it would be of interest here.

If stocks crashed, what portfolio would you want? - The Globe and Mail
How to build the Permanent Portfolio with ETFs trading on the Toronto Stock Exchange

Andrew Hallam said:
Consider how $10,000 would have performed in a global stock market index, beginning in January 2000. Measured in Canadian dollars, it would have dropped 9.5 per cent that year. It would have plunged a further 9.5 per cent in 2001. And it would have fallen a whopping 18.4 per cent in 2002. After three years, that $10,000 would have shrivelled to $6,684.

Meanwhile, a Canadian version of the Permanent Portfolio would have gained 4.4 per cent in 2000, just under 3 per cent in 2001 and 6.6 per cent in 2002. Over the same three years, $10,000 would have grown to $11,454.
Andrew Hallam said:
The Canadian version of the Permanent Portfolio averaged about 7.5 per cent per year from 1988 to 2021. That would have seen $10,000 grow to about $109,000.

And its worst year (2013) saw a drop of just 0.5 per cent
Meanwhile a Couch Potato portfolio of 25% each Can, US and global equity, and 25% Canadian bonds would have had an average geometric gain of 8.4% from 1998 to 2020, and had a worst 1-year drop of 19.8% in 2008. And $10,000 would have grown to over $145k. Source Note: this source only has data up to the end of 2020, not to 2021 as reported for the permanent portfolio. This would give a greater advantage to the Couch portfolio on this year's strong gains.

And bit of my own personal rant: I like Andrew Hallam's writing, especially as a resource for rookie investors that want an easy way to learn investing and a simple market portfolio. I don't know why he and other authors say young investors should hope for a market crash. Yeah it helps them buy cheap, but wishin' and hopin' is not a plan. A better approach is to help investors understand market volatility and how to mentally prepare themselves for it.
 

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Discussion Starter · #540 ·
A better approach is to help investors understand market volatility and how to mentally prepare themselves for it.
It's true that people have to get used to volatility, if they're going to invest. But it can still be very hard to tolerate beyond a certain point, even for people who think they are brave enough.

I've tried investing in different ways over the years. Initially (back around 1999) I was purely in equity index funds. It wasn't fun seeing these get wiped out, and yes I actually held them through the 2000 crash. But I really would not want to go through that experience if I actually had significant amounts invested. Say (for example) my life savings from a quarter century of hard work.

So I've pretty much ruled out 100% equity investing. I think a middle of the road asset allocation like 60/40 and 50/50 is pretty doable. If I didn't like the Permanent Portfolio, I'd probably go with XBAL or VBAL or another solid balanced fund like Mawer Balanced or PH&N Balanced.

But I really do enjoy the lower volatility of the Permanent Portfolio. I'm about 6 years into this and have had over 7% annual return. Events like the COVID crash really show the benefits of this, as the portfolio was more stable than 60/40.

That being said, if a person can't get on board with investing in gold (as an asset class) they definitely should not pursue the Permanent Portfolio.
 
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