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Dale Jackson

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A double digit gain for Uncle Horace

Dale Jackson

Uncle Horace would turn in his grave if the $25,000 he willed was squandered - that's why the goal for this portfolio was safety through diversity and a 10 per cent return target through careful stock picking.

Mission accomplished - well, the return was 10.1 per cent. Even after a $600 trading bill ($30 for ten buys and ten sells) that $25,000 has become $27,748.39. Even more amazing - every single investment appreciated.

That's not to say there weren't some nasty surprises. Within days after the October third investment date Ottawa dropped a bombshell and announced it would no longer grant special tax status for income trusts. The day after the Halloween announcement the trust sector went into freefall. Investors were up in arms but the smart money managers said the good income trusts would thrive regardless of their tax status.

And they did. Canadian Oil Sands jumped 17.4 per cent, Northwest Company Fund gained 15.8 per cent and Sterling Shoes squeaked out a five per cent gain.

Real estate investment trusts (REITS) escaped the Halloween income trust carnage and managed to maintain their tax status. That tax advantage didn't help RioCan REIT much, which only grew 5.4 per cent over the past year.

Retirement Residences REIT, however, was too attractive to be passed up. Two days after the October 3rd purchase date it was bought up by the Public Sector Pension Investment Board for $8.35 cash per unit - 6.8 per cent above the purchase price.

That wasn't the only coincidence to occur within days of the portfolio's creation. On October 31 the Friedberg Futures fund was terminated after posting a 50 per cent one-year return, and rolled into another fund managed by Friedberg Mercantile Group Ltd. The original fund, a portfolio of currency and commodity derivatives, was included in Uncle Horace's portfolio for its hedging qualities. The new fund, the Friedberg Global-Macro Hedge Fund, maintains that feature but also includes The Friedberg Diversified fund - a commodity derivatives fund.

When the assets in the Friedberg Futures fund were transferred into the Friedberg Global-Macro Hedge Fund, unit holders were given a comparable stake in the new fund. That fund's return since October sixth inception was 12.4 per cent.

Slow and steady won the race for big Canadian banks. The Bank of Nova Scotia turned in a one-year gain of 8.5 per cent while TD Bank grew in value by 6.1 per cent. Earnings for the banking sector were strong and stable throughout the year but both banks in the portfolio managed to outperform their peers thanks to increased exposure to international markets, which grew faster than domestic markets.

International markets had a direct component in the portfolio through the Mawer World Investment fund. Mawer Investment Management Ltd. continued its record of consistently beating its peer group and the benchmark MSCI EAFE Index by posting a one-year return of 14.1 per cent. $5,000 or 20 per cent of the portfolio was invested in the international equity fund.

It was a good year for the broader U.S. markets as well. The Barclay's sponsored iShares S&P 500 exchange traded fund advanced 15.4 per cent. The S&P 500 ETF consists of the 500 components in the index according to their market weighting. Sixteen per cent of the entire portfolio was invested in the S&P 500 ETF, which gave a strong boost to overall returns.

It wasn't all about safety with this portfolio. Twenty per cent or $5,000 was split between two high-flying stocks. Canadian software provider Emergis grew 33.8 per cent thanks to a recommendation from Selective Asset Management president Bob McWhirter.

The second high-flier was a U.S. based environmental services company called Clean Harbors Inc. It only gained 6.1 per cent during the year - not great for a higher-risk mid cap stock.

At the other end of the risk spectrum was a government of Prince Edward Island bond. The yield was expected to be 5.9 per cent and Prince Edward Island did not disappoint.

Uncle Horace wouldn't have much to complain about with this portfolio - except perhaps one thing. The trading fees really add up. Without those twenty trades at $30 a pop the portfolio would have grown $600 more and the total return would have been 13.4%. Perhaps it's a lesson from beyond the grave.

Dale Jackson has been a producer at Report on Business Television since its launch in September 1999.

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