The second quarter of 2016 ended with investors on high alert after the “Brexit” vote (almost) threw a spanner in the very welcome and ongoing recovery from the January lows. The Canadian equity market (in U.S. dollars) added 5% during the quarter for a total return of 17.8% so far this year.

By comparison, the S&P 500 added 1.8% during the quarter and 2.7% so far in 2016. The MSCI World equity index is down by about 1% year to date.

The Dividend Champions portfolio lagged the Canadian market in the second quarter, with a U.S. dollar return of 3.5%, but have kept pace so far this year with a 17.3% return.

Our portfolio holds very little exposure to the more volatile commodity producers and therefore has lost out on the spectacular 2016 performance of the gold miners and pure energy producers. That’s OK. We accept that we won’t capture all of the market upside when the commodity companies perform well; in return, we can sleep a bit easier courtesy of portfolio returns much less volatile than the broader market.

Over the 14 months since inception of the portfolio, the Dividend Champions managed to beat its benchmark by 6.1%, as indicated in the table.

Portfolio holdings that have performed well so far this year include TMX Group (TSX: X, OTC: TMXXF), with a 45% gain since included in the portfolio in January. InnVest REIT (TSX: INN-U; OTCIVR.F) gained 38%, with a takeover proposal from BlueSky Hotels supporting the unit price. Transcanada Corp (TSX: TRP, NYSE: TRP) and Inter Pipeline (TSX: IPL, OTC: IPPLF) added 32% and 27%, respectively, and Riocan REIT (TSX: REI-U, OTC:RIOCF) rounded out the top 5 with a 27% gain.

We also had some losers during the first six months, with K-Bro Linen (TSX: KBL, OTC: KBRLF) right at the bottom, with a 17% decline followed by Manulife Financial (TSX: MFC, NYSE: MFC) with a 13% decline.

While we are pleased with the strong absolute performance of the portfolio over the first six months of the year, we are cognizant of the fact that the portfolio return since inception is still below our annual target of 8%-15%. With a current dividend yield of 3.6% and dividend growth of around 6% per year, we are comfortable that our objective will be met over the target period of five years or longer.

The cash holding in the portfolio currently amounts to around 8.9%. We intend to hold the cash until we find other interesting opportunities.