Best fixed-income ETFs for 2020

Overview Canadian U.S. International Fixed-Income All-in-One Desert-Island Picks

Six of our previous fixed-income All-star picks return: ZAG, VSB, VAB, ZDB, BXF, and XSB. (Again, refer to the accompanying charts for full ETF names.) This year the panel decided to remove the BMO Laddered Preferred Share ETF (ZPR) after yet another disappointing year of performance for preferred shares.

However, we added two new ETFs with a global and/or U.S. focus: the Vanguard Global Aggregate Bond Index ETF (CAD-Hedged, ticker VGAB), and the Nasdaq-listed iShares Barclays 20 Year + Treasury Bond ETF (TLT), one of the few All-stars not trading on a Canadian exchange.

While not an official pick, BMO offers long-term treasuries in Canadian dollars by way of ZTL.

Launched Jan. 17, 2020, VGAB offers 15,000 government and corporate bonds across U.S. and global markets. Slightly under 50% of the fund is U.S. fixed income, while the rest is made of investment grade bonds from global markets, including almost 4% in Canada. It also includes a roughly 3% allocation in investment grade bonds from developing countries. Here is the blog post panelist Dale Roberts published shortly after VGAB was unveiled.

(Note that the Vanguard asset allocation ETFs already provide exposure to U.S. and global bonds, hedged back to the Canadian dollar; VGAB is simply a combination of VBG and VBU, both hedged back to the Canadian dollar.)

TLT invests in long-term U.S. treasuries. “You don’t fix a ship in a hurricane but, U.S. treasuries have been known to be better risk managers (many say the best outside of inverse ETFs),” notes Roberts. There are U.S.- and Canadian-dollar versions.

Readers might also want to consider the mid-duration iShares Barclays US Dollar 7- to 10-year ETF (ticker IEF), also on the Nasdaq, but not designated an All-star. “Many portfolio managers I speak with and any simple research shows the benefit of U.S. long- and mid-term treasuries. I’m so glad I own them,” says Roberts. “Much better risk managers compared to Canadian bonds.”

ETF Name	Ticker	Management Fee	MER	# of Holdings	Description
BMO Aggregate Bond Index ETF	ZAG	0.08	0.08	952	Broad universe of Canadian investment grade government and corporate bonds
Vanguard Canadian Aggregate Bond Index ETF	VAB	0.08	0.09	991	High credit quality, moderate current income
Vanguard Canadian Short-term Bond Index ETF	VSB	0.1	0.11	416	Canadian investment grade short-term Government & corporate bonds
BMO Discount Bond Index ETF	ZDB	0.09	0.10	204	Tax-friendly alternative for non-registered accounts
First Asset 1-5 Year Laddered Government Strip Bond Index ETF (BXF)	BXF	0.2	0.23	25	Unique structure beats other short-term bond funds after tax
iShares Core Canadian Short Term Bond Index ETF	XSB	0.09	0.10	477	Slightly cheaper than VSB, similar credit risk and rating profiles
NEW: Vanguard Global Aggregate Bond Index ETF (CAD Hedged)	VGAB	0.30	N/A	N/A	Just launched, invests in global bonds hedged back to the C$, rated low-risk
NEW: iShares Barclays 20 Year + Treasury Bond ETF	TLT (Nasdaq)	0.15	0.15	38	Long-term US treasury bonds, trades on Nasdaq

About Jonathan Chevreau

As MoneySense’s Investing-Editor-at-Large, he is also author of Findependence Day and co-author of Victory Lap Retirement. Reach him at [email protected], where he is the founder of Financial Independence Hub.

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Comments Cancel reply

Robin Mack says:

May 19, 2020 at 9:06 am

Yield notwithstanding, I too turfed ZPR from my stash, after five disappointing years.

Reply
Victor Chabot says:

May 21, 2020 at 3:49 pm

VGAB… One of the downsides would seem to be the large extra witholding tax drag in TFSA/RRSP which one of PWL capitals recent podcast note is ~0.23% on top of the MER of 0.3%, while it’s witholding is almost nothing in a taxable account (but instead of withholding, you’re paying full marginal rate on the income). This is a lot on low expected bond returns.

In Dales articles linked he shares some of the images from a Vanguard fund release brochure explaining VBU+VBG. And I guess VBU/VBG just hold the US listed ETF. Which causes the large witholding tax layer in TFSA/RRSP.

But on the vanguard site I can’t find any evidence it’s actually holding anything but the underlying bonds. There is no longer any mention of VBU or VBG on VGABs holdings? No evidence of US listed etf held within VBU/VBG holdings?

Has the fund structure changed for the better very recently? Or is vanguards site hiding the layering of VGAB -> VBU+VBG -> US Listed Vanguard ETF ?

What am i missing ? why is it so hard to identify the layering ?

Reply
Victor Sanchez says:

June 3, 2020 at 12:40 pm

thanks for theinformative article.

i am wanting to add a bond ETF to my non RSP account just to remained balanced. I will stay invested for about 5 -7 years

Given the current situation , I am having a hard time deciding what the best type of bond fund would be.
Should i be looking at long term/short term/ Aggrergate/ Canadian or international?
Looks like interest rates will remain low for awhile so wondering what the best approach might be.

Thanks

Thanks

Reply
Bill Silverberg says:

June 26, 2020 at 5:03 pm

I want a secure (GIC, high interest type) investment (am a senior citizen )
I am looking at RBC core bond fund RBF 1684
What is your opinion of this fund or can you recommend another
Thanks

Reply
Wei Chung says:

July 7, 2020 at 10:58 pm

Hello,
What is the Canadian Version of TLT? I can’t seem to find the Canadian Dollar Equivalent? Also would having TLT in a taxable account be a bad idea? Or should I just stick with a Canadian Bond ETF? Thanks!

Reply
1. Cameron Yee says:
  
  July 8, 2020 at 10:35 am
  
  Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.
  
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