Recommended List of Mutual Funds – July 2017
Additions
IA Clarington Floating Rate Income Fund (CCM 9940 – Front End Units, CCM 9942 – Low Load Units) – With the recent upward pressure on yields, investors are looking for ways to protect their portfolios. One asset class that can help do that is floating rate notes and loans, which pay a rate of interest that floats with a market interest rate, usually LIBOR. In most cases, this coupon rate is reset monthly, more or less eliminating duration risk. These loans are typically unrated, non-investment grade credits, that are often well-collateralized with seniority in the capital structure, providing protection against potential defaults. Another benefit is floating rate investments tend to have low correlation to the more traditional asset classes, making them a strong diversifier when incorporated in a well-diversified portfolio.
Read MoreETF Focus List – June 2017
Additions
None
Deletions
None
ETFs of Note
Vanguard Canadian Aggregate Bond ETF (TSX: VAB) – Bonds did well over the three months ending April 30, as Canadian yields drifted lower across the board. At the short end of the curve, the yield on the Canadian five-year benchmark bond fell from 1.11% to 1.00%, while the ten-year dropped from 1.75% to 1.54%. At the long end of the curve, yields fell from 2.41% to end the period at 2.16%. Because bond prices move in the opposite direction of yields, bonds rallied higher, with this ETF, which represents a broad spectrum of Canadian bonds, gaining a very respectable 2.9%.
Read MoreRecommended List of Mutual Funds – April 2017
It was a decent quarter for our Recommended List of Funds, with only two of the 47 funds on our list finishing in negative territory. The best performers were international equity funds, and those with significant allocations to the technology sector. The laggards were both Canadian small and mid cap equity funds. Despite the market continuing to reward many higher beta names, we continue to emphasize quality and discipline with our Fund picks.
Read MoreETF Focus List – March 2017
There were no ETFs added or deleted during this period. Funds of note include PowerShares Senior Loan Index ETF (TSX: BKL.F), PowerShares Tactical Bond ETF (TSX: PTB), PowerShares FTSE RAFI Canadian Fundamental Index ETF (TSX: PXC), iShares U.S. Fundamental Index ETF (NEO: CLU), and iShares International Fundamental Index ETF (NEO: CIE)
Read MoreRecommended List of Mutual Funds – January 2017
The fourth quarter was a challenging one for bond investors, with yields spiking sharply. In Canada, the yield on the benchmark Government of Canada five-year bond rose by 49 basis points, ending the quarter at 1.11%. It was a similar story for the Canada ten-year which rose by 72 basis points, ending the quarter at 1.72%.
Read MoreETF Focus List – December 2016
Vanguard Canadian Aggregate Bond Index ETF (TSX: VAB) – This TSX traded ETF provides broad exposure to the Canadian bond market. It is designed to track the Bloomberg Barclays Global Aggregate Canadian Float Adjusted Bond Index, net of fees. The index is cap weighted and holds investment grade government and corporate bonds of Canadian issuers.
It is rather like the iShares Canadian Universe Bond Index (TSX: XBB), but there are some differences. The first is VAB has a higher exposure to government bonds than XBB. VAB holds around 80% in government bonds, which is equally split between provincial and federal/agency debt. In comparison, XBB holds 70% in government debt, with a very slight tilt towards federal/agency debt. Because of this, the average credit quality is higher with VAB. A drawback is the interest rate sensitivity is higher. The duration of VAB is 7.8 years, compared to 7.3 years for XBB. In practical terms, this means VAB is likely to be hit modestly harder in the event of a bump in yields. Given the market volatility of the past few weeks, this has played out as expected, with XBB dropping by 2.05% in November, while VAB was down 2.18%.
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