Best fixed-income ETFs for 2019

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Six of our previous fixed-income All-Star picks are back: ZAG, VSB, ZDB, BXF, ZPR and XSB (Again, refer to the accompanying charts for full ETF names). The panel also decided to reinstate VAB from the 2017 edition, bringing the total number of fixed-income All-Stars to seven.

Best fixed-income ETFs for 2019: The list

ETF Name Ticker Management Fee MER # of Holdings Description
BMO Aggregate Bond Index ETF ZAG 0.09 0.10 921 Replaced VAB in 2017 edition but VAB matched low fee
Vanguard Canadian Aggregate Bond Index ETF VAB 0.08 0.13 929 Returning from 2017 edition
Vanguard Canadian Short-term Bond Index ETF VSB 0.1 0.11 369 Government and corporate bonds
BMO Discount Bond Index ETF ZDB 0.09 0.10 108 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
BMO Laddered Preferred Share Index ETF ZPR 0.45 0.50 191 Five-year ladder of “rate reset” preferred shares
iShares Core Canadian Short Term Bond Index ETF XSB 0.08 0.17 503 Slightly cheaper than VSB, similar credit risk and rating profiles

PWL’s Ben Felix likes ZAG and, for taxable accounts, ZDB. Robb Engen likes VAB as the aggregate bond index and XSB for short-term; the iShares Core Canadian Short-Term Bond Index ETF (XSB) was added last year.

There was some debate about ZPR, where the panel was almost evenly split but a slim majority was in favor of retaining the fund, which invests in a 5-year ladder of rate-reset preferred shares.

As was the case last year, the panel was intrigued by what the new Vanguard ETFs revealed about international fixed income. Just as many Canadians tend to be underweight global equities and US technology, arguably many are also underweight international fixed income. The new AA ETFs help redress the latter deficiency but of course investors are free to work with their advisors to tweak international fixed income exposure further by directly owning VBG (Vanguard Global ex-US Aggregate Bond Index) and/or VBU (Vanguard US Aggregate Bond Index), both of which are hedged back to the Canadian dollar.

Ben Felix made a case for the concept of VBG but with the caveat that “with relatively high fees and withholding taxes I’m not sure it makes sense yet: maybe when the fees come down.”

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