Is it strange that I was excited for the end of 2012 so that I could crunch the numbers on our investment performance?! Last year had a lot of ups and downs with the European debt crisis, US election, fiscal cliff and softening Canadian housing market.
There are some people, my wife included, who like to park their money somewhere safe and forget about it. I however, like to be intimately involved with the changes in the market and take them into account when thinking about our investments.
So I was fairly pleased to find that our portfolio returned 9.58% including dividends in 2012. The question is, how does a return of 9.58% compare to the overall market? To answer this, here is a table which shows the returns in various markets in Canada (TSX 60), the UK (FTSE 100), the US (S&P 500) and worldwide (MSCI). I gathered the data via Google Finance for 2012, these returns include dividends.
| Benchmark | % Return |
| TSX 60 Index | 7.6% |
| FTSE 100 Index | 12.9% |
| S&P 500 Index | 15.6% |
| MSCI All Country World Index | 16.4% |
What about the professional money managers? According to this article, Hedge Funds had an average return in 2012 of just 1.3%! This just goes to show you that the professionals don’t always get it right either.
To answer the question above, our return compares favorably to other markets considering the majority of our portfolio is made up of Canadian stocks. We were able to outperform the Canadian market but underperformed the broader market. Generally speaking, Canadian stocks have not done as well as their international peers.
Winners
Most of our stocks were winners this year with TD, XSP (S&P 500 ETF), XIU (TSX 60 ETF), Apple, RioCan, SNC, and Shoppers all in the green.
The biggest winner of the year was clearly Apple. I sold half our shares earlier in the year for a huge gain (93%) as I had become uncomfortable with the stock’s meteoric rise. Given my losses in Atmel and Baidu (which I will discuss shortly) I wanted to take my gain and run!
Related: What are ETFs and why you need them in your portfolio
Losers
We had 3 losers this year including Cenovus (-1.8%), Atmel (-60%) and Baidu (-20%). If you factor in Cenovus’ dividends, it is actually in positive territory. This leaves Atmel and Baidu as the big losers of the year.
Baidu (the Chinese equivalent to Google) took a very unexpected turn this year when a new competitor emerged in the internet search industry in China, Qihoo 360. When this news came to light in August, Baidu began a slow decline from around $133 to $100. It’s high was $151 back in April!
My lesson: I should have sold earlier and gotten out when I had a big gain.
I made the mistake of not selling my Baidu shares while I was significantly ahead earlier in the year. Instead I let it ride and my gains quickly evaporated. I was thinking that with internet usage still growing steadily in China, a new small competitor in the internet search industry wouldn’t have such a big effect. I was wrong!
Given that technology companies are volatile in general and Chinese tech companies are even worse, I should have gotten out! Of course, this is all in hind sight now. Baidu still has a lot of upside potential so I am going to hold on to my shares for the medium term.
Atmel is another story, it is down almost 60% due to several issues the company has had in the last year. It is a relatively small piece of our portfolio and since we own it in my TFSA I didn’t want to sell it and take a loss. Losses incurred in a TFSA cannot be used to offset capital gains, so I figured I would just hold on and hope for a recovery. The stock has recovered slightly in the last couple of months and may continue to do so into 2013. If the stock gets within a reasonable level of what I paid for it I’ll sell and not look back.
Related: 4 Reaons to add dividend stocks to your portfolio
Possible portfolio changes in 2013
While I am pleased with our portfolio generally, I may seek to make some changes this year. As mentioned, should Baidu and Atmel’s outlook improve, I may sell them to reduce our risk.
I will also consider selling Cenovus and Shoppers as they haven’t really done much in quite some time. Both stocks just seem to ping back and forth in a range of 2%-5% depending on the headlines of the day.
Real Estate
The other piece of our investment portfolio is real estate which hasn’t increased much at all this year (capital gain + principal repayment), maybe 0.5%. Given the current property market I have valued our investment here conservatively. Every year I wonder if we are better off paying down our mortgage faster or leaving the money in the market. This year, we were much better off staying in the market with a return of 9.58% vs the 3% or so we would pay on a mortgage!
Looking ahead
In my opinion, 2013 may look good from an investing perspective. The US and Chinese economies seem to be on the mend and the European debt crisis is very slowly coming under control. As long as there aren’t any other large financial shocks this year, I think we will see some decent growth.
http://www.shethinksimcheap.com/2012/11/15/what-are-etfs-and-why-you-need-them-in-your-portfolio/
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I calculated my 2012 returns at 12.34%, so pretty solid considering my portfolio is all Canadian dividend payers and REITs.
I picked up SNC at the end of November thinking the bleeding from their scandal had stopped. Looks like that’s the case so hopefully they can move on and deliver good returns going forward.
That’s great performance! If you were a hedge fund you’d make a nice performance premium by beating the TSX
I bought SNC at $37.80 soon after the crash and it has done well since. Hopefully we’ll both ride this one to great heights. They still have lots of contracts coming in so things bode well for the future.
I’m curious how you calculate your return. Do you
add up your dividends for the year and any realized capital gains for the year and
subtract any realized capital losses for the year, and
subtract any fees, commissions and expenses for the year and
divide it by the value of your investments at 4 p.m. on the previous December 31st, plus any new capital invested that year?
Or some other way?
That’s what I usually do, but I’m not sure what other people do.
Either way, it looks like you had a good year. Congratulations!
Hi Bet, there are a number of ways to calculate the return of a portfolio and most of them aren’t easy. I’ll probably write a post on this in the future!
The approach I use is to:
1) Determine the opening dollar value of your account at the beginning of the year
2) Add back all withdrawls from the account throughout the year
3) Subtract any contributions/deposits from the account throughout the year (leave your dividend payments though)
4) Determine the closing dollar value of your accounts at the end of the year
5) Calculate your return
This is a relatively easy way to get your approximate return. I use this approach because we don’t make too many trades or withdrawls / deposits during the year. The more activity you have in your account the less accurate this technique is.
I can see how that works well. Thanks! I’ll keep an eye out for your article on other methods when you have time to write it. Sounds interesting!