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What would the CPP look like using ETFs?

Continuing with the ‘CPP as a guide’ theme, if an investor wanted to replicate the CPP and implement their portfolio using Exchange Traded Funds, it could look something like this:

CPP asset mix:

A SAMPLE ETF portfolio with an asset mix that resembles the CPP might look something like this:


CPP asset class % ETF Symbol MER
Canada Bonds 30% iShares Canada Bond ETF (1) XBB 0.30%
US Bonds 1% Vanguard US Bond ETF BND 0.12%
Canadian equities* 14% iShares Canada (S&P/TSX) (2) XIC 0.25%
US equities US* 18% Vanguard (US Prime 750) (3) VV 0.12%
Global, ex-US* 18% Vanguard Euro Pacific (MSCI EAFE) (4) VEA 0.15%
Emerging Markets 5% Vanguard Emerging Markets VWO 0.27%
Real Assets** 14% iShares Canada REIT Sector ETF (5) XRE 0.55%
Total Portfolio 100%     0.27%

* Private Equity included in Equities.

** Real Assets includes Real Estate, Infrastructure.

Alternative ETFs and / or Index fund could include: Symbol MER
(1) iShares CDN Short Bond index ETF XSB 0.25%
TD Canadian Bond index-e 0.48%
(2) iShares CDN LargeCap 60 index ETF XIU 0.17%
TD Canadian index-e 0.31%
(3) iShares CDN S&P 500 index ETF XSP 0.15%
TD U.S. Index (US$)-e 0.33%
(4) iShares CDN MSCI EAFE Index ETF XIN 0.15%
iShares EAFE index ETF EFA 0.34%
TD International Index-e 0.48%
(5) Vanguard US Real Estate ETF VNQ 0.13%
Claymore Global Real Estate ETF CGR 0.65%
iShares Global Infrastructure ETF IGF 0.48%
Claymore Global Infrastructure ETF CIF 0.65%

Also consider: Power Shares  State Street Global Advisors

Doug Cronk, CFA is Manager, Investments for a Canadian Pension fund.

4 Comments Post a comment
  1. Lucas M. #

    Hi Doug,

    Really enjoy the posts. I’ve come back to this one several times to help me keep focus on my portfolio. One thing to note though, if you go to the CPP holdings on this page:

    You will find that there are some interesting levels over and under market cap levels of investments. They are not following normal passive index investments. Take a look at something like Dollar General Corp /w $533M invested and Generac Holdings /w $126M invested. compare that to say Walmart ($100M) or Exxon ($258). There are some others on the high side that really stand out. Low side is harder to see.

    It is hard to understand how they got there, they may have investments that have done very well that they have not sold off or big bets that fit there longer term horizon.

    It would be interesting to see where they are over and under weight by sector and other slices and then some of these other standouts.

    All the best,



    August 1, 2011
    • There is no rule that says the CPP investments must look like an index. In fact the CPP hires managers to specifically NOT look like the index. As do most Institutional investors. As should Individual investors, I think. If an investor wants to look like the index … why not simply buy the index?

      When I talk about the CPP or any Pension Plan as a good guide for many Individual investors, the context is at the strategic or asset allocation / mix level … not the security-specific level. Asset allocation is where the most impact / value / performance comes from … not the stock level.



      August 10, 2011
  2. JTN #

    Hi Doug, I’ve found time to read the back issues of your site and I must say I’m very grateful for the information you’ve put out here. I know it takes valuable time to do. Thank you.

    This post caught my eye. Over the past few half year I’ve fired my big bank investment guy and turned my mind to doing it ‘myself’ (with the ideas of learned persons). I’ve been out of school for a couple years and in a few months, when we have enough money to efficiently buy ETFs again, our portfolio mix of 150k-ish will look not too different from the sample above:

    30% Canadian Bonds (ZCS and XBB)
    15% Canadian Equities (XIC)
    20% US Equities (VTI and XSP)
    25% Global ex-US (VXUS)
    10% Assets (XRE and VNQ)

    The allocation was set even before I came across this post so I’m encouraged that we’re not out in left field. Unfortunately, my soon wife and I have a low RRSP limit as our lifetime “earned income” is low thus we are exposed to taxes.

    Distributing the holdings across 2 RRSPs, 2 TFSAs and 2 taxable accounts will take careful thought. I continue to research asset location and tax efficiency. I suppose that institutional portfolio managers have to be quite mindful of limiting turnover and exposure to capital gains taxes and taxes in general.

    If you would in a future post, please give us some insight on how taxes are managed by pension funds (or maybe I’ll find a post as I keep reading). Thanks.



    June 9, 2011
    • JTN,
      Wow, you got a lot going on there … ‘couple of comments:
      – Pension funds don’t pay taxes. I suggest you search Jonathan Chevreau (National Post) back articles on asset location for suggestions as to tax efficiency. Me? I keep it simple. My non-RSP portfolio consists of XDV and CDZ which i buy on extreme dips and by dollar-cost-averaging. I also keep ‘cash’ savings in XSB. Seach my blog for the ‘dividend tax credit’. For Canadians, it’s tough to beat.
      – Your asset mix 60/40 basically looks fine. That’s the key to success. Anything beyond that is tinkering … (and much more fun).
      – Pensions certainly do try to limit turnover. a few basis points of cost on a couple billion adds up.
      – Most investors share the same challenge you have with 2 rrsp’s, 2 tfsa’s plus non-rrsp holdings. How to allocate? By account? By personality? By household?
      I’ve seen one spouse have 100% stocks (usually the male) and the other spouse 100% gic’s/bonds (usually the female). On a ‘household’ level, the asset mix is fine … and satisfies each spouses ‘need’ for safety or speed. I have a small LIRA which i had as my ‘aggressive’ money and my rrsp as my ‘bedrock’ … today they look much the same just different sizes. Sorry not much help here.
      Sounds like you’re having fun.


      June 11, 2011

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