It’s time for another portfolio review. I have my 4th review ready for everyone. It’s a smaller portfolio with a dozen holdings. I consider this portfolio a really good start as it encompasses an important investing rule – understand your investments. It’s an important rule for Buffett and it is to me as well. If you can explain to a fifth grader what the company does, than you understand the business.
It’s a small portfolio with only 13 stocks. I could not have only 13 stocks but an investor near retirement commented on my dividend income and he has 14 stocks generating $36K annually. It can be done. I think the minimum is usually set just to cover all the sectors that you should really cover though. Below in my list of sectors, I have a total of 12 but I think bonds, technology and Entertainment are not required for balancing the ups and downs of the market. With all the love for Apple, we can’t really ignore the technology stocks though 
Diversification by Sector
I believe that sector allocation in your portfolio is very important as it represent how money is spent by consumers and companies. The sector classification can actually be complicated with multiple levels of classification and I prefer to keep it simple. As such I look at classifying stocks in the following sectors.
Bonds
Consumer Discretionary
Energy
Entertainment
Financials
Healthcare
Real Estate
Resources
Technology
Telecommunication
Transportation
Utilities
It’s also important to note that a diversified portfolio doesn’t need to be equally spread across all sectors but rather to avoid being overexposed by sectors (some sectors are more risky than others too)
Portfolio Review
I really like that this portfolio has some US exposure. It has a relatively low number of holdings but it does own US conglomerates. The US stock market and economy is picking up which will help this portfolio by providing exposure to the US dollar and international markets.
The market cap ratio between large and medium is also quite good. I like the ratio. I would love to know the split on money as I fear there is more than 50% in the financials … we’ll never know. Another interesting fact is that a good number of the holdings are Dividend Aristocrats - 11 of the holdings in fact. It makes for a portfolio that grows dividend every year. When re-invested quarterly, it makes for a fast compounding machine.
Related: Invest with the 10 / 10 rule
Company
Stock
P/E
Sector
Market Cap
Classification
Johnson & Johnson
JNJ
19.94
Healthcare
252.87
Large Cap
Coca Cola
KO
20.44
Consumer Discretionary
171.34
Large Cap
AT&T
T
25.57
Telecommunication
179.88
Large Cap
Bank of Nova Scotia
BNS.TO
10.92
Financials
80.47
Large Cap
Imperial Bank of Commerce
CM.TO
9.81
Financials
36.98
Large Cap
Royal Bank of Canada
RY.TO
12.09
Financials
105.64
Large Cap
Toronto Dominion
TD.TO
12.36
Financials
92.71
Large Cap
Bank of Montreal
BMO.TO
10.80
Financials
47.42
Large Cap
Penn West Petroleum Ltd
PWT.TO
N/A
Energy
5.81
Medium Cap
Bell Canada
BCE.TO
13.21
Telecommunication
38.67
Large Cap
Telus
T.TO
16.20
Telecommunication
20.57
Large Cap
Canadian Utilities
CU.TO
15.58
Utilities
9.16
Medium Cap
Fortis
FTS.TO
18.44
Utilities
7.63
Medium Cap
Related: How To Rebalance a Stock Portfolio
Portfolio Diversified?
Unfortunately, I cannot consider this portfolio diversified. As much as we love our Canadian banks, there are too many holdings subjecting the portfolio to more risks. They also do not grow as fast as other industries. National Bank (NA) for example has exhibited more growth than the big 5 and has raised dividends 6 times in the past 3 years. It was the first bank to start increasing dividends. Outside the banks, life insurance or companies like Power Financial could be a diversification within the financials that could offer some growth.
The actual investments are good companies in general but only JNJ and KO offer international diversification. It might be enough depending on the size of each investments.
Knowing the Canadian market, there are worthy investments in the following missing categories that would be worth looking into.
Real Estate
Resources
Transportation
Related: How To Review Your Portfolio
If you want to rebalance, you could subscribe to a Free Technical Trend Analysis to get indication of your stock trend.
Reader Portfolio Reviewed
Portfolio #1 – Missing investments in some sectors
Portfolio #2 – Too much in a couple of sectors
Portfolio #3 – Diversified!
The Successful Investor
As a reminder, Pat McKeough from TSI Network is offering a discount to my readers for The Successful Investor newsletter. I have written a review and have also highlighted how useful it can be in moments of market uncertainty. The clock is ticking if you are considering subscribing.
For less than $0.11 per day, you can get stock advice that can change your portfolio performances.
Readers: What do you think of the portfolio diversification?
Disclamer: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your decision at your own risk – see my full disclaimer for more details.
Image courtesy of Stuart Miles / FreeDigitalPhotos.net
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