After A Volatile Week:

An Update On The Balanced Model

Generally speaking, the 60/40 model (60% equity / 40% fixed income) should be basically close to flat on the year, however, it would depend on the weightings of the various sub-asset classes as to exactly how this would look at this moment.

My old model (2010-2014) is in fact down approx. 1% thus far this year.

Our new model (slightly adjusted earlier this year: increased cash position, reduced exposure to pref. shares, lower ETF costs among other changes) is up by approx. 1% on the year.

Europe, Australia and The Far East indexes (large and small companies) continue to be the best performers in the models.

The Canadian Preferred Share index is the worst performer.

Interestingly, the composition of the Canadian Preferred Share Index has been changing: as older, higher yielding issues are matured, they are being replaced by more recent, lower yielding issues (lower interest rates) which has reduced dividend distribution and made them a less desirable asset class.

Government and Corporate Investment Grade Bonds have made positive contributions, High Yield bonds are negative.

Also and interestingly, High Yield bonds are down less (thus far this year) than the S&P TSX and the S&P 500. This makes sense, because as I have pointed out in past blogs, Canadian High Yield offers better risk-adjusted returns than either of those 2 indexes over time:

As far as the equity markets contributions, as I have suggested earlier, non-North American (developed market) Indexes have out-performed, North American indexes are negative and Emerging Market indexes are basically flat (which, all things considered, is a bit of a surprise).

Remember, with a balanced portfolio, it is the re-balancing that will guide you on how next to proceed. Sell over-weight, out performing asset classes and buy under-weight under-performing asset classes. As the cycle progresses, out-performing assets will likely under-perform in time and under-performing assets will likely out-perform in time. Don't try to time the cycle, let the portfolio tell you when to trade.