Blogs & Comment

The One-Minute Portfolio (Q3 update)

The road has been bumpy for the One-Minute Portfolio during 2011, but the bond position is doing its job of smoothing the ride.

(Photo: Daniel Grill/Getty)

The One-Minute Portfolio decreased 3% during the third quarter. This was due to a slide of -7.1% in the iShares S&P/TSX 60 Index Fund (XIU), partially offset by a gain of 3.3% in the iShares Canadian Bond Index Fund (XBB).

On a year-to-date basis, the One-Minute Portfolio edged down by -2.75%. The drop in XIU over the past nine months was -8.4%, but it was offset by a 5.7% gain in XBB. The average annual return on the portfolio remains above 10%, since inception in 2003.

For more details on how the One-Minute Portfolio is calculated, see the update for the previous quarter.

Things now look bleak for stocks given the slowdown in the global economy and unresolved situations such as the Eurozone sovereign debt crisis. But I am encouraged by the latest analysis from Peter Gibson and Jeff Evans, analysts in the Portfolio Strategy & Quantitative Research unit of CIBC World Markets.

Historically, when bond yields fall to a low level relative to their trend (like they have now), “investors tend to be very well rewarded,” say the two. Low yields help stimulate the economy by bringing down mortgage and other borrowing costs. Low bond yields also often come with a downturn in the economy, which the Federal Reserve usually responds to with monetary stimulus. Gibson and Evans believe the Fed is only waiting for a pretext—such as the Eurozone crisis coming to a head—to launch another round of quantitative easing.