Short term bonds underperformed in the period, as stability in the commodity sector put upward pressure on Canadian short term rates. For the three months ending April 30, the yield on the Canada two-year bond rose from 0.42% to 0.68%, while the Canada five year finished the period at 0.87%, up from 0.67%. Despite this bump, XSB managed to end the period modestly higher.
Going forward, this remains my top short term pick for volatile times, given its mix of government and investment grade corporate bonds. While I believe the BMO Short Term Corporate Bond Fund (TSX: ZCS) will do marginally better over the long term, with its higher yield, XSB has slightly higher quality holdings and is expected to hold up better in periods of uncertainty on a flight to safety type trade. Further, the exposure to government bonds will also lessen concerns around liquidity, compared to a more corporate credit focused ETF. If downside protection is the most important factor for your short term bond exposure, I believe this is a great ETF for that. If you’re looking for a stronger total return profile, then ZCS would be expected to do better over the long term.