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ETFs
By Michael McCullough on May 23, 2024
Estimated reading time: 3 minutes
By Michael McCullough on May 23, 2024
Estimated reading time: 3 minutes
The MoneySense “Best ETFs” panel picks the best fixed-income ETFs for Canadian portfolios.
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Photo by Anthony Fomin on Unsplash
Last year our panel didn’t love bond funds, not surprisingly after the beating the category took in 2022. If you had to invest in the asset class, stick to short-term funds with lower duration risk, our judges seemed to say.
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For the first half of 2024, though, we’re happy to report the bond market has righted itself. If you bought a bond exchange-traded fund (ETF) when interest rates were peaking last fall, you might even have a small capital gain to your credit by now (in addition to interest income). And should rates decline as many market-watchers expect over the next 12 months, bond ETFs could end up doing very nicely indeed on a risk-adjusted basis with further capital appreciation.
The brighter outlook is reflected in our panel’s fund recommendations this year. The top vote-getters were, respectively, the BMO and TD Canadian Aggregate Bond Index ETFs, which cover the gamut of short-, medium- and long-term bond holdings. Beyond that, the consensus broke down somewhat. There was a tie for third place between iShares Core Canadian Short Term Bond Index ETF (XSB) and iShares Core Canadian Long Term Bond Index ETF (XLB), reflecting differing views on the interest-rate outlook.
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MoneySense is an award-winning magazine, helping Canadians navigate money matters since 1999. Our editorial team of trained journalists works closely with leading personal finance experts in Canada. To help you find the best financial products, we compare the offerings from over 12 major institutions, including banks, credit unions and card issuers.Learn more about our advertising and trusted partners.
Our top pick in 2023, XSB could be the safe option, with reduced duration risk. XLB is worth considering if you’re really sold on the falling-interest-rate thesis. It presents the possibility of delivering most of your return in the form of capital gains—a tax-efficient strategy in non-registered accounts. If rates rise, the value of XLB could decline.
“It seems that the bond market in 2024 continues to exhibit topsy-turvy dynamics, with yields on short-term bonds exceeding those of longer-term bonds,” panellist Mark Seed notes. “While I anticipate there is going to be a slow downward trend in the latter part of 2024, 2025 and into 2026 for interest rates, potentially for these reasons, investors might consider a mix of bond durations instead of just typical short-term bonds for safety, assuming that meets their tolerance for investing risk and broader investment objectives.”
In the table below, you’ll find the best fixed-income ETFs in Canada, as judged by our panel. Slide the columns right or left using your fingers or mouse to reveal more data. You can download the data to your device in Excel, CSV and PDF formats.
Best fixed-income ETFs in Canada
wdt_ID | Fund name | Ticker | Management fee | MER | Holdings | Description |
---|---|---|---|---|---|---|
1 | BMO Aggregate Bond Index | ZAG | 0.08% | 0.09% | 1,590 | Low fee, weighted duration 7 yrs |
2 | TD Canadian Aggregate Bond Index | TDB | 0.07% | 0.08% | 1,155 | Tracks Solactive Broad Canadian Bond Universe TR Index, avg 6.9 yr duration, 4.2% ytm |
3 | iShares Core Canadian Long Term Bond Index | XLB | 0.18% | 0.20% | 596 | Tracks FTSE TMX Canada Long Term Bond index. Potential capital gain opportunity when interest rates decline |
4 | iShares Core Canadian Short Term Bond Index | XSB | 0.09% | 0.10% | 632 | Low fee, short duration fund (weighted avg 2.55 yrs) with lower duration risk |
Fund name | Ticker | Management fee | MER | Holdings | Description |
- Overview: Best ETFs for Canadian investors
- Best Canadian ETFs
- Best U.S. ETFs
- Best international ETFs
- Best all-in-one ETFs
- Best cash-alternative ETFs
- Desert-island ETF picks
Read more oninvesting:
- The best online brokers in Canada
- A guide to the best robo-advisors in Canada
- The best TFSAs in Canada
- The best RRSP investments
Read more on investing:
- The best online brokers in Canada
- A guide to the best robo-advisors in Canada
- The best TFSAs in Canada
- The best RRSP investments
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