| Fund Company | CIBC Securities |
| Fund Type | Canadian Short Term Fixed Income |
| Rating | $$$ |
| Style | N/A |
| Risk Level | Low |
| Load Status | No Load |
| RRSP/RRIF Suitability | Excellent |
| TFSA Suitability | Excellent |
| Manager | Jacques Prevost since July 1999 Dave Dayarante since March 2008 |
| MER | 1.05% |
| Code | CIB 489 – No Load Units |
| Minimum Investment | $500 |
Analysis: Interest rates are currently hovering near historic lows and will eventually have to move higher. When that does happen, one of the most effective ways of protecting the value of your fixed income investments is to shorten the duration. Duration is simply defined as the weighted average term to maturity of a bond, taking into account all coupon payments that are expected to be received.
It is also an estimate of how sensitive a particular investment is to changes in the rate of interest. The shorter the duration, the less sensitive the investment is to interest rate changes. For example, if the duration was 5 years, it is expected that for every 1% increase in rates, the value of the investment would fall by 5%.
The CIBC Canadian Short Term Bond Index Fund is a good way for investors to access short term bonds. It is designed to replicate the performance of the DEX Short Term Bond Index, net of fees. This index is made up of a wide range of investment grade bonds that will mature within one and five years. The bonds are issued by the government of Canada, the various provinces and corporations.
In addition to the short term, the fund is also very high quality, with 56% of the index rated AAA, 20% AA, and 13% rated A. 52% of the fund has a maturity within three years, while 41% will mature within three and five years.
The fund has exhibited very low levels of volatility particularly when compared to a more traditional bond fund. Performance has been low, with a one year return of 2.0% as of July 31. But it does provide great diversification and downside protection when included in a well diversified portfolio. This is a result of its low correlation to the major equity indices.
For investors looking for a short term parking spot for their funds, but don’t want to use a money market fund or invest in a GIC, this fund is a great alternative. The probability of loss is low, while the expected return is higher than a money market fund, while providing daily liquidity, something you can’t get with a GIC.
While we do like this fund, it is our opinion that those with more than $5,000 to invest in short term bonds consider the PH&N Short Term Bond & Mortgage Fund instead. It offers a broader portfolio, high quality active management and a lower MER, all of which make it a more attractive option.