Canadian ETF knowledgebase
The fund seeks to track, less fees and expenses, the FTSE TMX Canada Convertible Bond Index – an equally weighted index, rebalanced monthly, of convertible bonds from Canadian issuers.
They must be a) on a Canadian exchange b) in CAD$; c) not currently in default of payment of either interest or principal; d) with a minimum monthly volume of $500,000, e) a minimum outstanding amount of $50 million; and f) the price of the bond must be greater than 80% and less than 120% of the principal amount of such bond.
The fund provides exposure to a diversified portfolio of Canadian convertible bonds that provides capital preservation from their bond features and upside equity participation, combined with monthly tax efficient distributions.
The FTSE TMX Canada Convertible Bond Index is divided into six main sectors: Real Estate, Consumer, Diversified, Energy & Utilities, and Materials.
Eligible bonds are assigned, by sector, based on their effective maturity date (either the option exercise date or the final maturity date).
Although most bonds in the Index are public issues, private issues that meet the criteria are also eligible for inclusion.
|Category (main)||Canadian Fixed Income - Convertible Bonds|
|Underlying Index||FTSE TMX Canada Convertible Bond Index|
|ETF Structure||Passive type. Endeavours to return the Index return before fees/costs|
|Asset Class||Fixed Income - Convertible Bonds|
|Issuer||iShares Canada by Blackrock|
|ETF Home Page||Available here|
|Inception Date||14 June 2011|
|Significant Currency Exposure||No|
|Currency Hedging||Not applicable|
|Management Expense Ratio (MER)||0.49%|
|Exchange||TSX (Toronto Stock Exchange)|
|Eligibility *||RRSP, RRIF, RESP, TFSA, DPSP, RDSP|
|DRIP available **||Yes|
|PACC Plan available **||Yes|
|SWP available **||Yes|
* Always check eligibility with your plan operator as plans and accounts can differ
** Not all brokers can facilitate these plans. Check with your broker.
To view the TSX or Morningstar fund page for this ETF click on the Fund Data menu tab or below:
Bonds/fixed income funds should be an important component in most investment portfolios. The general rule of thumb is that you should have the percentage equivalent in bonds as per your age. So if you are 30, your portfolio should comprise 30% bonds/fixed income funds.
However the bond markets are in near unprecedented territory. Years of central bank stimulus packages and ultra-low interest rates since 2008's Financial crisis have created a massive bubble.
Many analysts including Peter Boockvar, managing director and chief market analyst at The Lindsey Group, agree. He stated in July 2016 that the bond market is in an ‘epic bubble of colossal proportions’.
Until the buddle bursts, we cannot recommend buying bonds/fixed income funds.
If you absolutely have to buy bonds/fixed income funds then ensure you always check the Yield To Maturity (YTM), also known as the Weighted Average Yield To Maturity.
The YTM is much more important than the bond's current yield (also called the current distribution yield).
The YTM (unlike current yield) considers not only the coupon income, but any capital gain or loss that an investor will realize by holding the bonds to maturity. It also considers reinvestment of the coupons.
Unfortunately the frothy bond market has meant many fixed income ETFs have had to purchase many bonds at a premium. An ultra-low rate environment and purchasing bonds at a premium makes for a particularly terrible climate for income seekers, and new fixed income investors.
Protect yourself by understanding YTM and checking the YTM of any fixed income security you are considering purchasing. Also understand quality ratings, duration and maturities.
Be particularly aware of fund fees. What is the fund's MER ()? An MER of 0.40% may not sound like much but fixed income funds are supposed to be less risky than equities (bond market bubbles such as the current one excepted) so their returns are typically considerably less. Consequently an MER of 0.40% may actually be a significant portion of any investment return from a bond/fixed income fund. Bond ETFs with sub 0.20% MERs are available.