PIM: Diversified Income Portfolio

Paul Borisoff - May 02, 2018
PIM: Diversified Income Portfolio – June 4th, 2018 The Diversified Income Portfolio* was up 1.8% in May – and is now up 2.1% in 2018.   In comparison our benchmark was up 0.9% in May – and is down 1.6% this year.  Over the most recent twelve-month

PIM: Diversified Income Portfolio – June 4th, 2018


The Diversified Income Portfolio* was up 1.8% in May – and is now up 2.1% in 2018.   In comparison our benchmark was up 0.9% in May – and is down 1.6% this year.  Over the most recent twelve-month rolling period the portfolio is up 6.9% compared to our benchmark which is up 0.2%.


* These returns are reported as a composite, time-weighted, rate-of-return (gross of fees, net of transaction charges) for all accounts in this mandate.  Long-Term Returns/Benchmark Numbers will be reported in our Quarterly Updates.


The Canadian bond market (FTSE/TMX Canada Universe Bond Index) continued its zig-zag pattern once again last month – moving 0.8% higher in May – and back to flat in 2018 (0.0%).   Over the last twelve-months the Canadian bond market is down 1.0%.  The S&P/TSX Composite High Dividend Index (40% of our benchmark) was 1.2% higher in May – leaving it down 4.1% in 2018 – and up 1.8% over the last twelve months.   


There were lots of big headlines in May (Trump and North Korean denuclearization talks – on again, off again, European financial stability concerns – this time related to the Italian political developments, a big up move in oil – followed-by a slide as concerns related to the Saudis and Russians turning the tap back on rose, and then the Trump administration’s initiation of a Trade war with key allies at month-end - including Canada).   Given these events it was not too surprising to see renewed interest in bonds due to the increased uncertainty around the world.   Underlying North American economic statistics continue to be generally quite strong though.


Once again, we took advantage of the increased volatility to make a few adjustments to the portfolio:


Recent Portfolio Changes


The move higher in oil during the first few weeks in May prompted us to lighten-up on a few of our energy related names.  On May 15th we reduced our exposure to Whitecap Resources to 2.0% of the portfolio from 3.0% at $9.43 (3.3% yield) – realizing an approximate 3.5% gain on the position.  We also reduced our TORC Oil & Gas position to 2.0% of the portfolio from 2.7% at $8.05 per unit (3.3% yield) on May 18th after it moved up from $7.28 at the end of April.  On this position we were up ~21% in our model portfolio.   Finally, we reduced our Parkland Industries position the same day at $31.35 per share (3.7% yield) to 3.0% of the portfolio from 3.6% - locking-in a ~17% gain.


On May 16th we increased our exposure to Crius Energy Trust to 4.0% of the portfolio from 2.3% at $7.49 per unit (11.2% yield).   Crius has been under pressure from activist shareholders to make changes required to drive the company’s valuation higher.  As a result, the Board of Directors has formed a Strategic Operating Committee recently - which we believe may result in the company being sold.  The current consensus twelve-month price target is $10.20 (Bloomberg).


Also on the addition side we added a new 1.5% position to BSR REIT via it’s TSX IPO in mid-May at $10.00 USD per unit (5.0% yield). This REIT owns 48 garden-style multi-family properties across five U.S. sunbelt states (Texas, Arkansas, Oklahoma, Mississippi and Louisiana) – with management and the Board of Directors initially holding a 53% interest in the company – including a USD $30 million investment concurrent with the IPO.    We increased this position to 3.0% of the portfolio at $9.65 per unit on listing.  In our opinion this REIT is valued quite cheaply relative to other REITs in this area – and with strong management and insider alignment we expect it to do very well. Note, our Pure Multi-Family REIT position (we hold their 30SEP20 USD $5.65 convertible debenture) is currently the subject of an all-cash takeover bid at USD $7.59 from Electra America.   In response Pure Multi-Family REIT entered into multiple confidentiality agreements with interested parties in a bid to derive a higher eventual sale.  We expect our Pure Multi-Family REIT position to therefore be converted to cash at some point relatively soon (our convert position was up ~ 56% at month-end including currency adjustments).




At month-end the portfolio’s cash position was sitting at ~6.5% and our convertible debenture exposure was approximately 35.4%.  Total Cash and Fixed Income exposure including our four 3rd party specialty fixed income manager positions was ~68.8% at month-end.  

We continue to strongly believe that the portfolio’s composition and flexibility offers a substantially improved risk/reward trade-off compared to an “income portfolio” relying only on government bonds and pure stock market exposure to drive returns and income. 

Please do not hesitate to contact me if you have any question or concerns. 




Paul J. Borisoff


Senior Vice President

Portfolio Manager, Senior Investment Advisor