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First Asset Morningstar Morningstar Emerging Markets Composite Bond Index ETF - EXM

ETF Overview

At time of writing (May 2013) this ETF uses currency hedging although this fact is not mentioned on the fund's Home Page (at First Asset), fact sheet or eluded to by its name (which does not contain 'CAD hedged'). This important detail is only revealed in the fund's 60+ page prospectus.

The First Asset Morningstar Emerging Markets Composite Bond Index ETF has been designed to replicate, to the extent possible, the performance of the Morningstar Emerging Markets Composite Bond Index, net of expenses.

The investment strategy of the First Asset Morningstar Emerging Markets Composite Bond Index ETF is to obtain economic exposure by virtue of the Forward to the performance of the Morningstar Emerging Markets Composite Bond Index.

Additional Index Information

The Morningstar Emerging Markets Composite Bond Index includes the most liquid sovereign and corporate bonds issued in U.S. dollars by governments and corporations in Latin America, emerging Europe, Africa, Middle- East and Asia.

For inclusion in the Morningstar Emerging Markets Composite Bond Index, a security must be in the Morningstar Emerging Markets Sovereign Bond Index or the Morningstar Emerging Markets Corporate Bond Index based upon the criteria detailed in the Index Fact Sheet.

The Forward Agreement Structure

The Fund utilizes a Forward Agreement structure to gain exposure to the target portfolio.

Be aware that the forward structure adds additional costs to the ETF. These costs are not included in the MER.

Key ETF Data

Category (main) Emerging Markets Fixed Income - Government & Corporate (Investment & non-investment grade)
Underlying Index Morningstar Emerging Markets Composite Bond Index
ETF Structure Passive type. Endeavours to return the Index return before fees/costs
Asset Class Fixed Income - Government & Corporate (Investment & non-investment grade)
Region Emerging Markets
Issuer First Asset
ETF Home Page Available here
Fund Facts
Inception Date Oct 1, 2012
Total Holdings 46
Distribution Frequency Monthly
Leverage None
Significant Currency Exposure Yes
Currency Hedging Yes *

* At least 90% of portfolio will be hedged at all times

Management Fee 0.50%
Management Expense Ratio (MER) Unknown *
Forward Structure Costs 0.65%

* Not available yet

Trading Information
Ticker EXM
Exchange TSX (Toronto Stock Exchange)
Currency CAD
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.

Current Price, Fund Performance, Yield, NAV, Charts etc

To view the TSX or Morningstar fund page for this ETF click on the Fund Data menu tab or below:

ETF at TMX ETF at Morningstar

ETF Analysis

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.