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Understanding Your Monthly Waterhouse Statement

We have had several requests from clients to help them understand their monthly Waterhouse statements. Waterhouse can be congratulated for having one of the best statement formats in the industry; however, there are still some of traps in understanding what is there. We will start with the review of an RRSP statement.

The Portfolio Summary box in the top left corner lists the market value totals at the month-end by categories of cash, preferred shares, common shares and fixed income. There is a misnomer here if you own mutual funds because they are classed with common shares, even though, for instance, the particular funds may be bond, or “fixed income”, funds. Also, money market funds are classed as common shares even though they effectively are cash. The box on the right shows the percentages of each class to the total.

Lower in this box you will see the “Total portfolio as of…” the previous month. Giving these two totals an eyeball comparison gives you a quick, though not always accurate, indication of how the portfolio performed over the month. For instance, if you infused new cash or withdrew cash during the month, then you would need to factor that into the month’s increase or decrease. You can ascertain this by reviewing the Transactions During Period box.

The Book Value box below is there for the express purpose in an RRSP/RIF of monitoring adherence to the foreign content restriction. The % box to the right indicates how close your foreign component is to the maximum.

Next, we turn to the larger box on the far right. It starts with a continuity of cash over the month. Next is the Earnings box for the period and year-to-date, by categories of interest and dividends. These boxes sum the entries denoted as “div” or “int” in the Transactions During Period box at the bottom of the statement. Income from mutual funds (which typically are annually, but sometimes monthly or quarterly) reflect as “dividends”, even though they may be bond funds. However, income from money market funds correctly show as “interest”. The Year-to-Date totals restart at zero every January 1st. If you purchase semi-annual pay bonds, you usually have to buy accrued interest from the previous bond-owner. This shows up as negative interest income for the month, which confounds your understanding of how much you earned that month.

The Expenses box under “fees” includes our management fees, which are debited either annually, semi-annually or quarterly, depending upon the size of your account. The commission line tracks brokerage fees paid to Waterhouse on stock trades. Brokerage fees on bond or mutual fund trades do not show up as commissions, however. Brokerage commissions for trading bonds are built into the price. Any foreign content penalties charged by Revenue Canada are classed as “other”.

The Contributions box shows your RRSP contributions split in two periods, for tax purposes: January/February and March-December.

The Transactions During Period box is the “engine room” of events that transpired in the account during the month. This can include buying and selling assets, receiving income, depositing or withdrawing cash and transferring assets.

The Portfolio box lists all the things you own at the end of the month, “marked” to market, meaning valued at market on the last trading day of the month. The assets are grouped in classes of common shares, fixed income and foreign common shares. Remember that, here, “common shares” include mutual funds. The common shares and foreign shares are listed in alphabetical order. The fixed income positions are listed chronologically by their maturity date. This is very useful in order to see when you have bonds maturing into cash. Some of the bonds will have interest rates quoted beside them. This only occurs for bonds which make periodic interest payments. The stated rate is the “coupon” rate, meaning the amount of cash income paid annually to you. “Strip” bonds do not pay interest until they mature and, thus, do not have a coupon rate attached to them. The actual rate that you make on these bonds is not the coupon rate on the statement. You will find the actual return listed on our annual report summary or in the Transaction box for the month in which you purchase a particular bond. The Symbol column lists the trading symbol assigned in the industry to identify each asset. You can use this to follow your stocks in the paper or if you use a dial up service, like MicroMax. The far right column shows the percentage each asset is of your entire portfolio.

The Book Value column is used to track the foreign content described earlier. In many instances, you can use this number as your original cost when you first bought the security, e.g. for shares or bonds. However, this is not true for mutual funds because this figure also includes the value of all dividends received since you bought the fund. Therefore, the book value totals cannot be used to measure whether you have made or lost money on the portfolio as a whole.

RRIF statements are similar to RRSP statements except they don’t have a Contributions box because you can’t contribute to a RRIF. Instead, the Income box shows how much you are obliged to withdraw in the year and how much has in fact been withdrawn so far.

Direct Trading accounts do not keep track of book value because foreign content is not an issue. Note that, for the same reason, income from mutual funds do NOT show up in the Earnings box. Also, Contributions and Income statistics are irrelevant for non-sheltered accounts.

In conclusion, the best feedback on your portfolio’s performance is in our Annual Report to you. We can say with pride and accuracy that it is one of the best in the industry.

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