Canadian Portfolio

General Discussion on the Permanent Portfolio Strategy

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sunshine
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Canadian Portfolio

Post by sunshine » Thu Apr 30, 2020 12:50 pm

Hi ;)

Anyone here running a Canadian Portfolio?
What ETFs are you using?
Any benefit to having some TLT in LTs d/t to its reserve currency status ?
What have been your returns?

Many thx.
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Hal
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Re: Canadian Portfolio

Post by Hal » Thu Apr 30, 2020 4:42 pm

Have a look at Smith1776's posts as he lives in Canada. Especially the SmithPP thread if you are interested in international diversification.

viewtopic.php?f=1&t=9613
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Re: Canadian Portfolio

Post by Fredmong » Fri May 01, 2020 12:35 pm

Hi,

I am using :

VCN
ZFL
MNT
CLF

For the sake of simplicity, and instead of tweaking the allocation to include geographic diversification, I have a Canadian Permanent Portfolio and a US Permanent Portfolio and I rebalance them individually. Everything time I research how much of a Canadian investment portfolio should be allocated to the US, I cannot get a straight answer. Overall recommended allocation seems to be around 20-30% (Canada_) and 70-80% US.

CLF (or alternatives like ZFS) holds some mortgage related securities, which at first was a big turn-off, however after researching them, they seem to be insured by the Canadian government so they are as good as cash in my eyes.

Edit : regarding performance the following chart shows my first entry point in May 2019 and 2 capital additions/rebalancing. As you can see the Canadian PP was up around 10% before the huge drawdown related to the corona virus (US PP also had similar drawdown). But now it's back to around 10% for the trailing 12-months (chart doesn't include distributions so it is not total return).
https://www.tradingview.com/x/Z5q2U3pB/
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Re: Canadian Portfolio

Post by Smith1776 » Sat May 09, 2020 12:06 pm

Fredmong wrote: โ†‘
Fri May 01, 2020 12:35 pm
Hi,

I am using :

VCN
ZFL
MNT
CLF

For the sake of simplicity, and instead of tweaking the allocation to include geographic diversification, I have a Canadian Permanent Portfolio and a US Permanent Portfolio and I rebalance them individually. Everything time I research how much of a Canadian investment portfolio should be allocated to the US, I cannot get a straight answer. Overall recommended allocation seems to be around 20-30% (Canada_) and 70-80% US.

CLF (or alternatives like ZFS) holds some mortgage related securities, which at first was a big turn-off, however after researching them, they seem to be insured by the Canadian government so they are as good as cash in my eyes.

Edit : regarding performance the following chart shows my first entry point in May 2019 and 2 capital additions/rebalancing. As you can see the Canadian PP was up around 10% before the huge drawdown related to the corona virus (US PP also had similar drawdown). But now it's back to around 10% for the trailing 12-months (chart doesn't include distributions so it is not total return).
https://www.tradingview.com/x/Z5q2U3pB/
Indeed. Vanguard did a study on this and I believe the optimized stock allocation had about a 30% home bias towards Canadian equities.

Nice allocation you have there. You may want to check out KILO.B for your gold ETF instead of MNT as it has a lower expense ratio and is otherwise similar in the other relevant facets.

CLF is not a bad choice, and personally the small credit risk wouldn't bother me too much. ZFL is pretty much the only appropriate long bond choice in the whole country, so good call. Overall, not bad at all for an all-Canadian PP. 8)
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Hal
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Re: Canadian Portfolio

Post by Hal » Sat May 09, 2020 2:21 pm

Recommend you read the Vanguard study Smith1776 referenced. For Australia, the outcome was completely different as to what market capitalisation compared to the rest of the world would suggest. Here is a screenshot of an Australian Vanguard study I still have on my PC. Unfortunately I don't have a link/copy for Canada.

PS. A tip of the hat to Mathjak for his observations on the 60/40 Equity/Gold thread.
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Re: Canadian Portfolio

Post by Smith1776 » Sat May 09, 2020 2:32 pm

Found it!

https://www.vanguardcanada.ca/documents ... dvisor.pdf

For reference, Vanguard's Canadian ETFs that aim for global equity diversification follow the 30% to Canada idea.


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Re: Canadian Portfolio

Post by Fredmong » Wed May 13, 2020 5:46 pm

Smith1776 wrote: โ†‘
Sat May 09, 2020 2:32 pm
Found it!

https://www.vanguardcanada.ca/documents ... dvisor.pdf

For reference, Vanguard's Canadian ETFs that aim for global equity diversification follow the 30% to Canada idea.
Thanks! I have been looking for this for years. Ended up reverse-engineering it from the equity allocation of asset-allocation ETFs like VGRO/XGRO.
And in time, I might switch to KILO.B too.
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Re: Canadian Portfolio

Post by Smith1776 » Wed May 13, 2020 7:57 pm

Fredmong wrote: โ†‘
Wed May 13, 2020 5:46 pm

Thanks! I have been looking for this for years. Ended up reverse-engineering it from the equity allocation of asset-allocation ETFs like VGRO/XGRO.
And in time, I might switch to KILO.B too.
Cool beans. I was so stoked when those asset allocation ETFs came on the scene here in Canada. It felt like we were living in the financial stone age before they came along.
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Re: Canadian Portfolio

Post by Hal » Wed May 13, 2020 11:29 pm

Smith1776 wrote: โ†‘
Wed May 13, 2020 7:57 pm
Fredmong wrote: โ†‘
Wed May 13, 2020 5:46 pm

Thanks! I have been looking for this for years. Ended up reverse-engineering it from the equity allocation of asset-allocation ETFs like VGRO/XGRO.
And in time, I might switch to KILO.B too.
Cool beans. I was so stoked when those asset allocation ETFs came on the scene here in Canada. It felt like we were living in the financial stone age before they came along.
Comments like that make finance fun! :D
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Re: Canadian Portfolio

Post by gaston » Thu May 14, 2020 5:11 am

Hi sunshine, I only use ETFs for the stock allocation. I think the most appropriate are ZCN and XIC because they track the benchmark index (S&P TSX Composite), they are fairly large and liquidity is okay. Their MER is 0.06%.

I have made my own backtest since 1970 for the Canadian PP and the real compound annual return from the beginning of January 1970 to the end of January 2020 has been 4.47%. From January 2017 when I started to January 2020 it's been 3.75% real compound annual return. These numbers exclude all fees and taxes.
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Re: Canadian Portfolio

Post by Smith1776 » Thu May 14, 2020 1:48 pm

Vanguard's VCN ETF is also a great option for a Canadian total market index fund. All-in MER is 6 basis points. Right in line with competing offerings.
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Re: Canadian Portfolio

Post by sunshine » Fri Jun 19, 2020 4:49 pm

Hi :)

Thx for all the replies.
Sorry for the late reply, but I have been very ill.

Is anyone using MNT for the gold portion finding that it is not tracking goldโ€™s movement very well?

Today, gold was up over 1% and it only moved .27%.
Other days, gold is down, and it is up?

The bid/ask spreads tend to be quite wide at times.

Not sure if I should diversify into more than one one gold etf or even go w/IAU or GLD which seem to mirror goldโ€™s movement better?

Thanks,
Sunshine :)
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Re: Canadian Portfolio

Post by Smith1776 » Fri Jun 19, 2020 6:28 pm

sunshine wrote: โ†‘
Fri Jun 19, 2020 4:49 pm
Hi :)

Thx for all the replies.
Sorry for the late reply, but I have been very ill.

Is anyone using MNT for the gold portion finding that it is not tracking goldโ€™s movement very well?

Today, gold was up over 1% and it only moved .27%.
Other days, gold is down, and it is up?

The bid/ask spreads tend to be quite wide at times.

Not sure if I should diversify into more than one one gold etf or even go w/IAU or GLD which seem to mirror goldโ€™s movement better?

Thanks,
Sunshine :)
The Royal Canadian Mint has been very open about the premium/discount that MNT experiences. You can find a graph of historical discount/premium at the bottom of this page. https://www.reserves.mint.ca/tsx_gold/i ... et-values/

MNT is an absolutely fine choice, but it's not my favourite. It's not as secure as Sprott but not as expensive. It might be more secure than Purpose Investments but is more expensive. It sits in the middle between the two.

If all of your gold holdings are digital, I personally think that Sprott (PHYS or CEF) is the way to go. If you have some physical holdings, then simply opting for the lowest MER product (KILO.B from purpose) is the optimal choice in my view.

Just my 2 cents!
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Re: Canadian Portfolio

Post by Fredmong » Thu Jun 25, 2020 9:59 pm

Thanks for pointing that out ! I might sell out of MNT sooner than later.

I always knew that there was some premium associated with MNT. However, the premium to NAV is now around 20%.

My theory is that since it is a redeemable for physical type of fund and since allegedly delivery of physical for huge quantities from dealers take more than 6 months now. This creates some kind of loophole if the Mint delivers faster than the dealers. A big buyer of physical might be bidding the price up. This looks like an arbitrage opportunity.

https://stockcharts.com/freecharts/perf ... 6&O=011000
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Re: Canadian Portfolio

Post by sunshine » Fri Jun 26, 2020 10:45 am

Hi :)

How does one deal w/this ?

What do you mean by arbitrage and how does one do this ?

What would you replace MNT with ?

Thx
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Re: Canadian Portfolio

Post by Fredmong » Fri Jun 26, 2020 12:59 pm

sunshine wrote: โ†‘
Fri Jun 26, 2020 10:45 am
Hi :)

How does one deal w/this ?

What do you mean by arbitrage and how does one do this ?

What would you replace MNT with ?

Thx
I sold MNT this morning as it was -1.5% at the open compared to CGL.C and KILO.B which were mostly flat. Looking like the premium is starting to fade. Bloomberg shows yesterdays premium at 18% and it says that 52-week average premium at 2.78%.
https://www.bloomberg.com/quote/MNT:CN

I am not an expert, but by arbitrage I mean playing the mispricing of an asset in 2 different markets. In this case, 2 physically backed gold ETFs. There are a ton of ways to do this. One could sell short the ETF with a premium and buy the other ETF without a premium. Options could also be a great way to play this, buying a put and a call. However, MNT is not shortable nor does it have options. Technically, the simple fact of selling MNT which has a 18% premium and buying CGL.C which has almost no premium, is kind of an arbitrage trade.

To maintain my position in gold I immediately bought CGL.C which is commission-free at my broker, otherwise I would have surely used KILO.B. The thing is I plan to get back in MNT if the premium dissipate.

Again an 18% premium is unheard of. And as I type this MNT is down over 2% and CGL is up.
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Re: Canadian Portfolio

Post by sunshine » Fri Jun 26, 2020 1:35 pm

Thanks your reply and explanation :)

Now I will have to make a switch also.

I did not like the wide spreads that have been occurring in MNT either for re-balancing or adding funds to the PP.

If you do not mind me asking, why do you want to get back into MNT w/its wide spreads and premium ?

Thanks a bunch :)
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Re: Canadian Portfolio

Post by Fredmong » Fri Jun 26, 2020 2:23 pm

The best passive choice for canadian gold ETF is obviously KILO.B, physically-backed and dirt cheap MER. Low volume might cause the same trouble as widespreads though but might not be an issue depending on portfolio size.

However, I believe that MNT is superior by the fact that it is an ETR directly redeemable at the MInt. No middle man, less chances of failure. Of course this has a price, higher spread, higher MER and possible premium in time of crisis. Right now, MNT is in high demand, which makes me think that investors see more safety in MNT than in the other gold ETFs.

My bet is this might repeat itself in the future. So I will wait for a lower premium on MNT, maybe 5% or lower, switch back and then hold until the next crisis and maybe the same will happen and I will be able to capture the premium. I am not excluding that this might be a once in a lifetime occurrence, but I am willing to pay the extra MER to take that chance. As time passes, I appreciate asymmetric risk setup more and more : paying 0.10% on excess MER per year, waiting for potentially a 10% or more increase in premium. I will take that bet everytime. I just did it once since I have bought MNT in May 2019, so I am already a winner.

For the typical PP investor, I wouldn't bother much, I would pick one ETF and stick with it. The beauty of the PP is that the premium on MNT might trigger a rebalancing faster and force you to sell some MNT and harvest some of that premium to redeploy in lagging assets. Doing nothing right now was my second option and who knows premium might go even higher if the high demand continues. My gold portion was at 29% and I use 15/35%. Had I used 30%, I would have simply rebalanced out of MNT.
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Re: Canadian Portfolio

Post by blue_ruin17 » Fri Jun 26, 2020 8:28 pm

One vote for the Sprott "PHYS" fund, here.

I like the relative transparency of the fund. It is a bit less of a "black box" than many of its peers. I have more confidence that the NAV is matched ounce for ounce by actual gold stashed in a vault, and that the redeemability of shares for deliverable gold is more likely to be taken seriously by Sprott. Some of the other ETF options out there are a little more dubious...you skim the prospectuses and you read terms like... "in case of x, y, or z, your shares will be settled for cash in lieu of delivery"...

I'm pretty paranoid when it comes to gold counterparty risk, though. My motto is that counterparty risk doesn't matter until it is the only risk factor that matters.

Ultimately, nothing replaces holding gold in your direct custody, but for a certain liquid portion of my portfolio's gold allocation I'm pretty happy with PHYS.
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Re: Canadian Portfolio

Post by Fredmong » Sat Jun 27, 2020 3:13 pm

blue_ruin17 wrote: โ†‘
Fri Jun 26, 2020 8:28 pm
One vote for the Sprott "PHYS" fund, here.
(...)
@blue_ruin17 Yes, a colleague of mine also swears by PHYS. The problem I see with PHYS is the current situation with MNT. To me their close-end fund structure looks quite similar to the ETR structure of MNT. Both may end up not tracking NAV which renders them kind of illiquid since you can't buy nor sell them without checking the price/NAV to make sure you're not over paying or selling at too much a discount. If I understand this right : they cannot issues new shares which would drive the price down when the premium gets out of hand as with MNT right now. ETFs don't have that restriction.

So again the more liquid seems to be CGL.C, the cheapest KILO.B. MNT and PHYS are different beasts.

In the end, I agree, nothing beats physical ownership of your gold :)
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Re: Canadian Portfolio

Post by Smith1776 » Sat Jun 27, 2020 5:13 pm

I've been really enjoying holding KILO.B since I discovered it. The one thing that was always bothering me about every gold ETF provider here in Canada is the high expense ratios. KILO.B really brings things in line with what I expect for a long term holding.

The documents in the Purpose Investments literature specify KILO.B as using a traditional ETF structure rather than a closed end fund or ETR like others. So, discounts/premiums should be kept pretty tight. The trade off is that there ought to be times where the fund itself must have periods where it has more or less gold than the amount investors have notional ownership over.

Having said that, I think that we can all agree that the one gold ETF investors should NOT own is that abomination being offered by Horizons.

https://www.horizonsetfs.com/etf/HUG

Rolls futures instead of holding real gold, tiny AUM, and insane expense ratio.

I often flip-flop mentally about whether I should go back to holding those super robust and secure Sprott funds. But going back to my previous thoughts, the fact that I already hold quite bit of physical gold/silver makes me think that the low MER KILO.B is still the way to go for me.
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Re: Canadian Portfolio

Post by blue_ruin17 » Sun Jun 28, 2020 11:28 am

Fredmong wrote: โ†‘
Sat Jun 27, 2020 3:13 pm
blue_ruin17 wrote: โ†‘
Fri Jun 26, 2020 8:28 pm
One vote for the Sprott "PHYS" fund, here.
(...)
@blue_ruin17 Yes, a colleague of mine also swears by PHYS. The problem I see with PHYS is the current situation with MNT. To me their close-end fund structure looks quite similar to the ETR structure of MNT. Both may end up not tracking NAV which renders them kind of illiquid since you can't buy nor sell them without checking the price/NAV to make sure you're not over paying or selling at too much a discount. If I understand this right : they cannot issues new shares which would drive the price down when the premium gets out of hand as with MNT right now. ETFs don't have that restriction.

So again the more liquid seems to be CGL.C, the cheapest KILO.B. MNT and PHYS are different beasts.

In the end, I agree, nothing beats physical ownership of your gold :)
I actually kind of like the swings in NAV because they swing with the momentum of gold's price. This means more capital appreciation on the upside, and a greater ability to accumulate on the downside; it sort of amplifies the volatility of gold, which in the context of the Permanent Portfolio is actually beneficial. It reminds me of using zero-coupon LTT in order to amplify bond volatility to the benefit of the Permanent Portfolio.

This is just shop talk, though. This isn't a factor that significantly influences my implementation of the Permanent Portfolio at all.
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Re: Canadian Portfolio

Post by Smith1776 » Sun Jun 28, 2020 1:48 pm

I wanted to share a new concoction of mine without starting a new thread, so I'll post it here. I've "invented" a variation of the Goldsmith PP. The Goldsmith PP being itself a variation of the PP that uses a vanguard conservative fund as a replace for the stock, bond, and cash components of the portfolio. I've assembled a factor tilted variation of the portfolio for Canadians that I am quite taken with.

- 25% KILO.B. (Gold ETF)
- 60% VCIP (Vanguard Conservative Income Portfolio - 80% bonds/20% stocks)
- 15% VVL/VMO/VVO/VLQ (Vanguard value, momentum, low volatility, and liquidity factor funds)

An allocation to the above ETFs would yield the following underlying exposures:

- 25% gold
- 48% intermediate term global investment grade bonds
- 12% global market cap weight stocks
- 3.75% global value stocks
- 3.75% global momentum stocks
- 3.75% global low volatility stocks
- 3.75% global liquidity premium stocks

Hard to find a portfolio more diversified. If you are big on factor diversification as I am, you'll like this one.
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Re: Canadian Portfolio

Post by Fredmong » Mon Jun 29, 2020 11:21 am

blue_ruin17 wrote: โ†‘
Sun Jun 28, 2020 11:28 am
(...)
I actually kind of like the swings in NAV because they swing with the momentum of gold's price. This means more capital appreciation on the upside, and a greater ability to accumulate on the downside; it sort of amplifies the volatility of gold, which in the context of the Permanent Portfolio is actually beneficial. It reminds me of using zero-coupon LTT in order to amplify bond volatility to the benefit of the Permanent Portfolio.

This is just shop talk, though. This isn't a factor that significantly influences my implementation of the Permanent Portfolio at all.
Yes I agree. That was one of my criteria for buying MNT in the beginning. Potentially more demand for the physcially-backed ETFs. Never thought I would see such a large swing though.

I bought EDV in one of my US PP account for the same reason you outline. I believe this is one of the reason why a rebalancing was triggered in this account when EDV jumped 30% in early March.

Since the PP is all about harvesting volatility, looks like these instruments amplify it. Might be a perfect match for the PP.

PS : Your new book is en route. Can't wait to read it !!
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Re: Canadian Portfolio

Post by Fredmong » Mon Jun 29, 2020 11:57 am

Smith1776 wrote: โ†‘
Sun Jun 28, 2020 1:48 pm
I wanted to share a new concoction of mine without starting a new thread, so I'll post it here. I've "invented" a variation of the Goldsmith PP. The Goldsmith PP being itself a variation of the PP that uses a vanguard conservative fund as a replace for the stock, bond, and cash components of the portfolio. I've assembled a factor tilted variation of the portfolio for Canadians that I am quite taken with.

- 25% KILO.B. (Gold ETF)
- 60% VCIP (Vanguard Conservative Income Portfolio - 80% bonds/20% stocks)
- 15% VVL/VMO/VVO/VLQ (Vanguard value, momentum, low volatility, and liquidity factor funds)

An allocation to the above ETFs would yield the following underlying exposures:

- 25% gold
- 48% intermediate term global investment grade bonds
- 12% global market cap weight stocks
- 3.75% global value stocks
- 3.75% global momentum stocks
- 3.75% global low volatility stocks
- 3.75% global liquidity premium stocks

Hard to find a portfolio more diversified. If you are big on factor diversification as I am, you'll like this one.
Interesting portfolio ! Have you read Meb Faber's Global Asset Allocation book ? He sure makes a case for global equity investing.
Before the virus, US equities looked so overvalued compared to global equities. Now the world is such a mess, that US equities still look like the best house in a bad neighborhood for times to come. Long-term there is some better value in global equities, but short-term US equities might outperform.

How do you handle rebalancing bands with such an allocation ? Or do you only rebalance on a fixed date ?
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