| Fund Company | Invesco Canada Ltd. |
|---|---|
| Fund Type | Cdn Short Term Fixed Income |
| Rating | C |
| Style | Rules Based |
| Risk Level | Low |
| Load Status | Front End |
| RRSP/RRIF Suitability | Excellent |
| Manager | PowerShares Management Team |
| MER | 0.99% |
| Fund Code | AIM 53203 – Front End Units |
| Minimum Investment | $2,000 |
Analysis: In a recent speech, Bank of Canada Governor Stephen Poloz highlighted that the Canadian economy is once again on the road to recovery. This essentially signals the likelihood of another cut to the Bank’s key overnight lending rate is now remote. With rates on hold for now, and eventually moving higher, shorter duration bonds will be a great way to help protect your portfolio.
The main drawback to most short term bond funds is the cost, with the average MER in the 1.3% range. With a 1.3% haircut right off the top, it is very difficult for most funds to post much in the way of returns for investors. With an MER of 0.99%, well below most of its peers, this PowerShares offering is a great fund to consider.
The fund invests in a portfolio of short term bonds that is designed to replicate the FTSE TMX Canada Investment Grade 1-5 Year Laddered Corporate Bond Index. The index is made up only of corporate bonds rated BBB or higher.
The index is built using a laddered approach, with its portfolio divided into five equally weighted segments with staggered maturity levels from one year to five years. Five bonds are chosen for each maturity bucket, based on factors like industry sector and liquidity. Controls are in pace to prevent undue levels of sector concentration.
In addition to the lower cost than its competition, the portfolio also offers a higher yield to than either the TD Short Term Bond or the PH&N Short Term Bond and Mortgage Fund. At the end of April, its yield to maturity was 1.74%, compared with 1.1% for TD and 1.5% for PH&N. Another feature is it pays a variable distribution, which has generated an annualized yield of more than 3% for investors.
Barring a major dislocation in the credit markets, I would expect this fund to hold up better than most other short term bond funds, making this a fund to consider for those looking for a high quality, low cost way to reduce the duration of your fixed income holdings.