How target maturity fixed income ETFs provide the stability for equities to do their thing
Investment counsellors should give consideration to target maturity ETF listings as foundational for both their pools and managed accounts, with such vehicles improving execution and return certainty while minimizing compliance reporting.
Most investment counselling firms run equity-heavy portfolios for their clients. The firms built their reputations on dedicated client service and a high conviction approach to stock selection. This segment of the asset management industry continues to grow strongly, bringing more competition to Canada’s rather narrow High Net Worth (HNW) market.
Increased competition is forcing investment counsellors to broaden their offerings to retain and attain new HNW clients, requiring more resources to screen alternative assets like private debt and private equity, asset classes that are both rising in appeal to this sophisticated client segment.
Fixed income, seemingly an afterthought in comparison, tends to play a secondary role in most counselling portfolios. Its purpose is unglamourous: to provide stability in the portfolio and manage foreseeable cash needs. It is understood that fixed income returns are modest but critical to maintaining steadiness. Unfortunately, it is also a difficult exposure to manage operationally.
Several larger counselling firms have created capital pools for operational effectiveness and scale, but they can, in our view, deepen their efficiencies by including fixed income in these pools, increasing their scalability and potentially decreasing compliance burden.
Fixed income ETFs provide liquidity, scalability and enhanced execution to an asset class that is otherwise constrained. For counselling firms seeking to create stability in client portfolios, leaning heavily on fixed income ETFs can leave space for equities and alternative asset classes to fulfil their mandates.
Managing short-term fixed income
Most fixed income allocations will be relatively short-term, avoiding the interest rate sensitivity which comes with exposures to longer maturity bonds. BMO Global Asset Management (GAM) strives to be the leading fixed income ETF provider in the country. Its vast array of listings reflects a commitment to providing investors with precise and liquid building blocks to tailor exposures as markets evolve over time.
Having been rattled a few years ago when soaring rates caused losses in what was supposed to be a stable allocation, Canadian investors have shown a strong appetite for short-term stability in their fixed income holdings. The ETF industry has witnessed large flows into money market and ultra short-term ETF listings, but new “target maturity” listings can improve yield while maintaining the same stability counsellors often seek when holding short-term corporate bonds to maturity at par.
Unlike open-ended fixed income listings, target maturity fixed income ETFs have a culmination date, offering insulation from changing rates or credit spreads, just like individual bonds.
Table 1. The benefits of individual bonds blended with ETFs
BMO target Canadian corporate bond ETFs |
Traditional target maturity bond ETFs |
Individual bonds |
GICs |
Regular bond ETF/Mutual Funds |
|
Distributions |
Quarterly |
Monthly or quarterly |
Semi-annual |
No |
Monthly or quarterly |
Diversification |
Yes |
Yes |
No |
No |
Yes |
Declining duration |
Yes |
Yes |
Yes |
No |
N/A |
Intraday price transparency |
Yes |
Yes |
Yes |
No |
ETFs, yes; Mutual Funds, no |
Professionally managed |
Yes |
Yes |
Yes |
No |
Yes |
Liquidity |
Yes |
Yes |
Not as liquid |
Not as liquid |
Yes |
Set maturity date |
Yes |
Yes |
Yes |
Yes |
No |
Yield to maturity certainty |
Yes |
Unknown |
Yes |
Yes |
Unknown |
For illustrative purposes only. BMO Global Asset Management, 2025.
BMO GAM’s series of target maturity fixed income listings provide investment counsellors with the ability to use a single instrument carrying an average A credit rating to gain access to a diversified portfolio holding over 20 corporate bond issues. As bonds mature at par within the year of maturity, they are replaced by interest rate forwards to provide the same anticipated yield-to-maturity as a bond maturing in November of the designated year.
To be sure, there are other target maturity ETFs available in Canada, but they do not use interest rate forwards to provide the same anchor to the outcome. Instead, investors in other listings are exposed to interest rate movements that may distort anticipated outcomes (see Table 1.), undermining the stability which target maturity listings are supposed to provide.
Rather than allocate precious firm resources to an asset class with limited return potential, counsellors may consider these listings as excellent foundations for both their pools and their separately managed accounts. Target maturity ETF listings improve execution, trading at tighter spreads than their underlying holdings, minimize compliance reporting while providing uniformity and scalability to enhance investment counsel operations.
Table 2. BMO target maturity Canadian corporate bond ETFs snapshot
Ticker |
Asset |
Year-to-month |
Duration |
Fees (bps) |
Weighted average term |
11/27 |
3.30% |
1.9 |
15 |
1.92 |
|
11/28 |
3.40% |
2.8 |
15 |
2.97 |
|
11/29 |
3.70% |
3.6 |
15 |
3.96 |
|
Canadian short corporate |
3.50% |
2.7 |
10 |
2.94 |
|
Canadian short discount corporate |
3.30% |
2.7 |
9 |
2.74 |
|
Canadian money market |
2.80% |
N/A |
12 |
N/A |
|
Canadian ultra short-term |
2.90% |
0.5 |
15 |
0.57 |
BMO Global Asset Management, as of July 18, 2025.
Please contact your BMO institutional sales partner for additional market insights.
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