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Back in March 2008, I created the first portfolio for my Internet Wealth Builder newsletter. At that point we were in the midst of a strong bull market but I was concerned that share prices were getting out of line. The Defensive Portfolio was designed for investors who wanted continued exposure to stocks while reducing downside risk. To achieve that, the initial portfolio weighting was 40 per cent fixed income, 60 per cent stocks. The original value was $10,000.

In the 6-1/2 years since, I've made several changes to the securities in the portfolio but always aimed at keeping the fixed income exposure to at least one-third of the total assets. The rest is invested in blue chip, dividend-paying stocks – four Canadian and two American.

Here's a summary of the securities we currently hold with some comments on how they have performed since my last review in April.

iShares Canadian Short Term Bond Index ETF
This defensive short-term bond fund was added to the portfolio in October 2013 in anticipation of higher interest rates. They have yet to materialize and it will likely be a while before they do. The fixed-income component is the largest position in the portfolio and is key to maintaining our overall defensive posture. This is a very low risk and stable fund, however it cannot be expected to contribute significantly to our overall return. Since the last review in April, the shares have dropped $0.03 in value however that was more than offset by monthly distributions of about $0.06 per unit. The total return since it was added is 3.3 per cent.

Walmart
After a good run last fall and winter, Walmart shares retreated over the summer, slipping $1.10 (U.S.). We received two dividends totalling $0.96 a share but that wasn't quite enough to offset the drop in the share value so we ended the latest six-month period with a small loss.

Fortis
Here's a surprise. This normally dull but dependable stock was the top performer in the portfolio during the latest period, adding $2.64 per share. Add to that three dividends (thanks to timing) of $0.32 each and we had a six-month total return of 11.2 per cent from this Newfoundland-based utility.

Enbridge
At the time of my last review, I reported that Enbridge shares had gained $8 between October 2013 and April 2014. Since then, the stock has traded in a narrow range, adding just $0.77 since April. Two quarterly dividends of $0.35 each added to our gain, giving us a six-month return of 2.9 per cent. Despite that modest advance, Enbridge is still the top performer in this portfolio with a total return of 121 per cent since inception.

BCE Inc.
BCE shares, which also enjoyed a good run in the October-April period, gave back $0.65 of that advance over the summer. But two dividends totalling $1.235 kept us in the black for the latest period.

Wells Fargo
I added this big U.S. bank to this portfolio in October 2013 and it has done well for us. The share price is up US$1.68 since April and including dividends we have a one-year total return of 25.5 per cent. Since we treat the currencies at par for purposes of this portfolio, that gain does not include the profit from the rise of the U.S. dollar against the loonie.

Bank of Nova Scotia
Scotiabank shares continue to perform well, adding $2.17 since the April update. Dividends totalling $1.30 gave us a total return of 5.3 per cent over the latest six months.

Interest
We put our cash holdings of $234.94 into a high interest savings account paying 1.35 per cent. We received $1.59 in interest over the six months.

Here is how the portfolio looked based on prices on the morning of Oct. 22. Declared distributions/dividends to the end of October have been included. Brokerage commissions have not been taken into account and the Canadian and U.S. dollars are deemed to be at par for tracking purposes. Fractional shares are shown for greater accuracy.

Click on image to enlarge

Comments
The value of the portfolio (market value plus cash) is now $17,545.65. That's a modest improvement of 3.3 per cent since the last review in April, which is about what we should expect from a portfolio such as this. Since inception, we have a cumulative return of 75.5 per cent, which works out to a compound average annual growth rate of 8.9 per cent. That's down slightly from April but it's still comfortably above the target for this portfolio of 5 per cent to 6 per cent a year.

Changes
I'm going to add a little more upside potential to the fixed-income component of this portfolio. To do that, we will sell 100 shares of XSB for a total price of $2,863. We will use $2,808 of that to buy 90 shares of the iShares Canadian Universe Bond Index ETF (TSX: XBB), which was trading at $31.20 at the time of writing. The remaining $55 will be added to the cash reserve.

XBB offers greater return potential – as of Oct. 21, it was showing a year-to-date gain of 7.4 per cent compared to 2.8 per cent for XSB. But it also carries somewhat more risk in the event of an interest rate spike so we'll keep a watch on it.

The rest of the portfolio remains unchanged. We'll keep the cash in our high-interest savings account, which now pays 1.3 per cent.

Here is how the revised portfolio looked based on prices on the morning of Oct. 22. Declared distributions/dividends to the end of October have been included. Brokerage commissions have not been taken into account and the Canadian and U.S. dollars are deemed to be at par for tracking purposes. Fractional shares are shown for greater accuracy.

Click on image to enlarge