iShares Conservative Short Term Strategic Fixed Income ETF - XSC

ETF Overview

The fund seeks to generate income for unitholders by investing primarily in securities of one or more exchange-traded funds managed by BlackRock or an affiliate that provide exposure to Canadian and international fixed income securities, including government bonds, investment grade corporate bonds, high yield securities, emerging market debt and other types of fixed income investments, while adhering to certain portfolio constraints upon rebalancing.

In seeking to generate income, the fund will, upon rebalancing, generally: (i) limit its total exposure to high yield securities to 25% of its portfolio; and, (ii) limit its exposure to interest rate risk by maintaining a portfolio duration of less than five years.

Key ETF Data

Fundamentals
Category (main)	Global Fixed Income - Government & Corporate (investment & non-investment grade)
Underlying Index	No Index
ETF Structure	ETF of ETFs (ie fund of funds)
Asset Class	Fixed Income - Government & Corporate (investment & non-investment grade)
Region	Global
Issuer	iShares Canada by Blackrock
ETF Home Page	Available here

Fund Facts
Inception Date	Sept 1, 2015
Total Holdings	8 *1
Distribution Frequency	Monthly
Leverage	None
Significant Currency Exposure	Yes
Currency Hedging	Maybe *2

*1 Holds various iShares ETFs

*2 Prospectus states fund MAY employ currency hedging

Fees
Management Fee	0.40%
Management Expense Ratio (MER)	Not specified

Trading Information
Ticker	XSC
Exchange	TSX (Toronto Stock Exchange)
Currency	CAD

Eligibility
Eligibility *	RRSP, RRIF, RESP, TFSA, DPSP, RDSP
DRIP available **	Yes
PACC Plan available **	No
SWP available **	No

* 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 Analysis

Blackrock need to improve their website and fund Fact Sheets.

Neither make these important aspects clear for this fund:

whether currency hedging is employed to mitigate or eliminate currency risk - we had to search through a 60+ page prospectus to determine that the fund MAY employ currency hedging at the discretion of the Blackrock fund manager
discretionary hedging is not good enough - the potential investor does not know whether it will be employed or not, so they do not know to the extent to which they are exposed to currency risk
the Canadian dollar has gained or lost up to 20% in a given year against the US dollar so currency risk is a significant risk no investor should ignore or take lightly

Given this is a fund-of-funds, we also encourage Blackrock to look at ways of reducing the fund's MER ().

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.