BMO Canadian ETF Dashboard

— as of November 30, 2018 —

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Fixed Income: It Comes Down to the Costs

Alfred Lee

Fixed Income: It Comes Down to the Costs

Snapshot

For Canadian Fixed Income, cost is a key consideration. Knowing this, BMO offers two ETFs that stand out from the crowd at just 15 bps.1 Now you can control cost while you move between all government bonds (ZGB) or all investment-grade bonds (ZCB).    

Details
BMO Aggregate Bond Index ETF (Ticker: ZAG)
BMO Corporate Bond Index ETF (Ticker: ZCB)
BMO Government Bond Index ETF (Ticker: ZGB)

Benefits

  • Put more money to work for your investors while providing you the flexibility to control your credit quality. ZCB and ZGB save up to 25 bps when compared to other leading ETFs. 

Trade Idea – Managing Costs to Optimize Canadian Fixed Income Returns in today’s markets
Starting with the broad bond market, represented by ZAG, you can see benefits from broad diversification across the yield curve and low cost in today’s markets. Morningstar ranked ZAG in the first or second quartile in 2016, 2017 and 2018,2 demonstrating how a passive approach in Canadian fixed income can complement your global bond or high-yield holdings. It’s also important to note that passive strategies such as ZAG have performed well in the last two and a half years, as central banks have been tightening monetary policy. 

2018-10-ETFCharts-Trailing-Total-Returns-EN-848.jpg#asset:1745

To provide further perspective, we looked at the range of returns of fixed income mandates in different markets. As demonstrated in the chart, the range of returns is tightest in Canadian fixed income, elevating the idea of controlling costs to be a key consideration when investing in this space.   

2018-10-ETFCharts-High-Yield-EN-848.jpg#asset:1714

For investors that prefer to target specific areas of the Canadian fixed income market in order to deliver specific risk or return objectives for clients, cost should also be an important consideration. An emphasis on cost minimization should also apply to investors that take a tactical approach, since moving between all investment-grade and government bonds is an effective way to implement your view on the markets. Mapping tactical expertise onto a cost-focus strategy has you adding the most value and ultimately optimizes your clients’ return prospects in Canadian fixed income.      

Name Ticker YTM Management Fee
BMO Aggregate Bond Index ETF ZAG 2.89% 0.08%
BMO Corporate Bond Index ETF ZCB 3.39% 0.15%
BMO Government Bond Index ETF ZGB 2.70% 0.15%


Outlook 

Our Fixed Income model portfolio is tilted to credit with a 15% weight in ZCB, built off the core holding of ZAG. ZCB holds bonds that are across the yield curve for term diversification, but will pick up yield, given that it is composed of investment-grade corporate bonds. While we are comfortable with this tilt at this time, we are closely monitoring developments in fixed income, knowing that we can easily change the exposure to ZGB at the right time in the future.

To view our BMO ETF Fixed Income ETF Strategy Report, please click here.



1 Management Fee as of August 31, 2018.

2 For more details on the calculation of Morningstar star ratings or quartile rankings, please see morningstar.ca.

Alfred Lee

Fixed Income: It Comes Down to the Costs

Snapshot

For Canadian Fixed Income, cost is a key consideration. Knowing this, BMO offers two ETFs that stand out from the crowd at just 15 bps.1 Now you can control cost while you move between all government bonds (ZGB) or all investment-grade bonds (ZCB).    

Details
BMO Aggregate Bond Index ETF (Ticker: ZAG)
BMO Corporate Bond Index ETF (Ticker: ZCB)
BMO Government Bond Index ETF (Ticker: ZGB)

Benefits

  • Put more money to work for your investors while providing you the flexibility to control your credit quality. ZCB and ZGB save up to 25 bps when compared to other leading ETFs. 

Trade Idea – Managing Costs to Optimize Canadian Fixed Income Returns in today’s markets
Starting with the broad bond market, represented by ZAG, you can see benefits from broad diversification across the yield curve and low cost in today’s markets. Morningstar ranked ZAG in the first or second quartile in 2016, 2017 and 2018,2 demonstrating how a passive approach in Canadian fixed income can complement your global bond or high-yield holdings. It’s also important to note that passive strategies such as ZAG have performed well in the last two and a half years, as central banks have been tightening monetary policy. 

2018-10-ETFCharts-Trailing-Total-Returns-EN-848.jpg#asset:1745

To provide further perspective, we looked at the range of returns of fixed income mandates in different markets. As demonstrated in the chart, the range of returns is tightest in Canadian fixed income, elevating the idea of controlling costs to be a key consideration when investing in this space.   

2018-10-ETFCharts-High-Yield-EN-848.jpg#asset:1714

For investors that prefer to target specific areas of the Canadian fixed income market in order to deliver specific risk or return objectives for clients, cost should also be an important consideration. An emphasis on cost minimization should also apply to investors that take a tactical approach, since moving between all investment-grade and government bonds is an effective way to implement your view on the markets. Mapping tactical expertise onto a cost-focus strategy has you adding the most value and ultimately optimizes your clients’ return prospects in Canadian fixed income.      

Name Ticker YTM Management Fee
BMO Aggregate Bond Index ETF ZAG 2.89% 0.08%
BMO Corporate Bond Index ETF ZCB 3.39% 0.15%
BMO Government Bond Index ETF ZGB 2.70% 0.15%


Outlook 

Our Fixed Income model portfolio is tilted to credit with a 15% weight in ZCB, built off the core holding of ZAG. ZCB holds bonds that are across the yield curve for term diversification, but will pick up yield, given that it is composed of investment-grade corporate bonds. While we are comfortable with this tilt at this time, we are closely monitoring developments in fixed income, knowing that we can easily change the exposure to ZGB at the right time in the future.

To view our BMO ETF Fixed Income ETF Strategy Report, please click here.



1 Management Fee as of August 31, 2018.

2 For more details on the calculation of Morningstar star ratings or quartile rankings, please see morningstar.ca.