You'd think after four consecutive years of great returns, I'd have learned not to bet against income trusts.
But in a review of the investment ideas presented in this column over the past year, some comments on trusts last January stand out for their striking lack of prescience.
The wording was something along the lines of it not being the right time back then to buy trusts. Technically, I was right. The best time to buy trusts was in early 2000, when they were unloved and invisible. Then again, it wasn't a bad time to buy trusts at the beginning of 2005, given that the S&P/TSX capped income trust index has risen about 21 per cent since then.
The call on trusts was a bust, but this column did better on gold and energy. In September, with the precious metal trading at $470 (U.S.) an ounce, it looked at all the ways to speculate in gold and highlighted the many forecasts that prices would rise to $500 or more. Gold actually hit $540 late in the year, then retreated just below $500 in what some gold bugs believe is a retrenchment that will lead to another leg up.
As for energy, a March column suggested that there was enough upside in the oil and gas sector to make it worthwhile for latecomers to jump in. The Mackenzie Universal Canadian Resource Fund, recommended in the column by Ian Filderman, director of mutual funds for Bank of Nova Scotia's wealth management arm and Dave Paterson, an independent fund analyst, is up about 28 per cent since March.
The Two-Minute Portfolio, a continuing exercise in simplified stock picking, had a fair year in 2005. The idea is to invest identical amounts in the largest stock by market capitalization in 13 prominent indexes and subindexes on the Toronto Stock Exchange. The portfolio's year-to-date total return as of midweek was 18.9 per cent (including dividends), which trails the 23-per-cent total return of the S&P/TSX composite and is mid-pack among the largest Canadian equity funds.
The portfolio's weak spot was one shared with several mutual funds -- too little exposure to the energy sector. While EnCana Corp. delivered a knockout 61-per-cent gain, it started the year with the same weighting as dogs such as Loblaw Cos. and Alcan Inc., both down about 20 per cent.
Speaking of dogs, one of this column's more useful suggestions was that investors look at the dogs of the TSX, or in other words the highest-yielding stocks in each of the S&P/TSX composite's sectors. Among the top dogs were Laurentian Bank, up 41 per cent since the beginning of the year; Rothman's, up 21 per cent; and MDS, up 18.5 per cent. The runt of the litter was Manitoba Telecom Services, down 18 per cent.
An attempt in March to highlight some old-fashioned widows and orphans stocks yielded mostly good results and one certifiable turkey. To make the cut, a company had to be a steady revenue producer, consistently profitable and low in debt. A five-year record of no dividend cuts and a current dividend yield of at least 2 per cent were also required.
Thirteen stocks made it through the screening process and all but three had a good year in which they returned anywhere from 6.5 per cent for Emera Inc. to 40 per cent for Royal Bank of Canada. The foulest stock in the bunch was St. Lawrence Cement Group, which fell 57.6 per cent. No, cyclical stocks are not ideal for widows and orphans, even if they do pass all kinds of financial tests.
There's no definitive word yet on how well a column on the bonds issued by General Motors Acceptance Corp. served readers. Beaten up by investors worried about the serious financial problems at parent General Motors Corp., GMAC bonds offer yields far above safer government and corporate bonds. There's been no talk of a default risk, but the parent company's problems loom large. For this reason, it was suggested that investors stick to short-term GMAC bonds and forget about the longer-term issues.
Stay tuned to the Personal Finance column in 2006 for lots more investing ideas. Who knows, I might even take another crack at income trusts.
The two-minute portfolio
At the beginning of the year, $2,000 was invested in the largest stock by market capitalization in 13 S&P/TSX sector and subsector indexes. Here's how this exercise in simple stock picking has worked out in 2005.
| Name | Symbol | Total Cost | Market value | Dividend income | Overall gain/loss | Overall gain/loss % |
| Alcan Inc. | AL-T | $2,000 | $1,574.15 | $24.37 | $-401.47 | -20.7 |
| BCE Inc. | BCE-T | $2,000 | 1,919.09 | 68.46 | -12.45 | -0.63 |
| Barrick Gold Corp. | ABX-T | $2,000 | 2,172.41 | 18.19 | 190.60 | 9.53 |
| Biovail | BVF-T | $2,000 | 2,736.74 | 58.27 | 795.00 | 39.75 |
| Brookfield Properties | BPO-T | $2,000 | 2,310.93 | 37.30 | 348.23 | 17.41 |
| Canadian National Railway | CNR-T | $2,000 | 2,485.56 | 20.53 | 506.09 | 25.30 |
| Canadian Utilities | CU.NV-T | $2,000 | 2,795.09 | 72.94 | 868.04 | 43.4 |
| EnCana Corp. | ECA-T | $2,000 | 3,209.94 | 14.00 | 1,223.95 | 61.2 |
| Falconbridge | FAL.LV-T | $2,000 | 3,218.42 | 45.58 | 1,264.01 | 63.2 |
| Loblaw Cos. | L-T | $2,000 | 1,555.12 | 17.50 | -427.38 | -21.37 |
| Nortel Networks Corp. | NT-T | $2,000 | 1,750.00 | 0.00 | -250.00 | -12.5 |
| Royal Bank of Canada | RY-T | $2,000 | 2,800.00 | 73.15 | 873.15 | 43.66 |
| Thomson Corp. | TOC-T | $2,000 | 1,902.06 | 44.77 | -53.17 | -2.66 |
| Total | $26,000 | $30,429.51 | $495.07 | $4,924.59 | 18.9% |
SOURCE: GLOBEINVESTOR.COM
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