So, imagine last year you decided to park $5,000 into Brookfield Renewable Partners (TSX:BEP.UN), eyeing its sweet mix of green energy projects and that nice dividend yield (6.14% as of April 8). It’s a pretty solid choice for getting into the renewable energy game and snagging some passive income, right?
As cool as it sounds to own a piece of the clean energy pie, it’s still sticking your dollars into one basket. And that basket can get shaken up by market mood swings, new rules from the government, or changes in monetary policy.
Let’s break down how your $5,000 investment would’ve fared through the ups and downs of 2023.
How your investment would have fared
If you’d put $5,000 into Brookfield at the beginning of 2023, by now, you’d be looking at $4,824. That’s a bit of a drop, giving you a -2.83% compound annual growth rate (CAGR) — not exactly the green explosion you might have hoped for, right?
But let’s say you just parked that $5,000 in good, old cash — a savings account or something similar. You’d have a little bump up to $5,328, thanks to a CAGR of 5.22%. That’s not thrilling, but hey, at least it’s going up!
Now, the S&P/TSX 60 Index — that’s where the action was. That $5,000 would have grown to $5,942. That’s a sweet 14.80% CAGR. The broader Canadian stock market pulled its weight!
A word on risk
Here’s the twist, though: volatility (Stdev, or standard deviation). It’s like the rollercoaster factor for your investments. Brookfield had you gripping the safety bar with a 34.40% Stdev, while cash kept things smooth and steady at 0.10%. What about the TSX fund? It’s a middle-of-the-track experience at 13.61%.
And about those gut-check moments — the max drawdown shows the biggest drop from peak to trough. Brookfield had a stomach-churning -30.93% drawdown, while the TSX 60 index was a lot less nerve-wracking at -7.63%.
So, with dividends rolled back in, cash proved safe but sleepy, the TSX 60 index was the star player, and Brookfield … well, let’s just say it could have been a sunnier day in the green energy sector.
Why did this happen?
It’s not always possible to pinpoint the exact reason why a specific stock goes down, but for Brookfield, the impact of rising interest rates is a plausible factor.
Utility companies like Brookfield often carry significant amounts of debt due to the capital-intensive nature of their operations. When interest rates are high, the cost to service this debt increases, which can squeeze profit margins and make the stock less attractive to investors.
It’s also worth noting that the utility sector on the TSX experienced downturns as well, indicating that the challenges faced by Brookfield might have been part of a broader sector trend.
The takeaway here is the importance of diversification. By spreading investments across multiple stocks from various sectors, you can mitigate the risk of any one company or sector significantly impacting your portfolio’s overall performance.
