Couch Potato Portfolio Posts Modest Gains

Performance continues to improve but still lags more active strategies

Our couch potato portfolio posted a modest 0.33% gain in the three month period ending April 30. Since its January 2008 launch, the portfolio has risen by a mere 1.03% per year on an annualized compounded basis, or a total return of 4.52%.

It was once again the iShares S&P 500 Index Fund (CAD Hedged) (TSX: XSP) leading the way higher, rising by more than 6.5% during the period on improving economic news out of the U.S. Despite losing nearly 3% in the month of April as investor focus returned to the European debt crisis, the iShares MSCI EAFE Index Fund (CAD Hedged) (TSX: XIN) gained nearly 2.6% during the quarter.

Canadian equities were lower as fears of a slowdown in China sent materials and energy stocks lower, dragging down the broader iShares S&P/TSX Capped Composite Index Fund (TSX: XIC) by 0.6%. During February and March, market volatility was virtually nonexistent, pushing bond yields up and prices down. As a result, the iShares DEX Universe Bond Index Fund (TSX: XBB) dropped by 1.14% for the three month period.

As we have stated in previous newsletters, we like the conceptual appeal of the couch potato portfolio. It is simple to understand and easy to put into action. We believe that it may be a good solution for those investors who have a long term time horizon and want to be able to set up their portfolio and forget about it until many years down the road.

But because of its simplicity, there may also be extended periods of time where the couch potato style of investing may lag an approach that is much more hands on. We believe that we are currently in one of those periods. We are experiencing periods of extreme market volatility and while things appear to have settled down slightly, there are still many headwinds and issues that remain unresolved.

In this uncertain environment, it is our view that investors would be better suited in a more active strategy, either by making tactical shifts within their portfolios themselves or by investing in high quality, actively managed funds. For example, if we look at the performance of the Couch Potato Portfolio in the most recent period, its return was a gain of 0.33%. In comparison, the average Canadian neutral balanced fund gained 0.7% and the average global neutral balanced fund was up by 1.4%.

Here is the latest report on the couch potato portfolio performance. Results are based on the prices as of April 30, 2012.