20 Best Bond ETFs in Canada (2020)

Best Bond ETFs in Canada
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Last updated Nov 10, 2020

Bond ETFs give you the chance to invest in a variety of bonds while adding more income to your bottom line. 

As the stock market saw a drastic selloff frenzy due to the COVID-19 pandemic, bond ETFs may be a safer investment for investor capital.

According to a report from the National Bank of Canada Financial Markets, bond ETFs continued trading at a high volume during the market crash in March 2020. 

Despite a discount on prices, the report said that the discounts are not going to affect long-term investors. Canadians are flocking to bond ETFs for the security they offer. 

Here is a guide to 20 of the best bond ETFs in Canada you can consider in 2020:

What is a Bond ETF?

To consider investing in bond ETFs, it would help understanding what they are a little better. Bond ETFs are similar to regular ETFs, but they exclusively invest in bonds. 

Bond ETFs are passively managed and trade similarly to stock ETFs on the stock exchange. They hold a portfolio of bonds with different particular strategies.

Bond ETFs make benchmark bond indices more accessible to ordinary investors. They trade on a centralized exchange rather than over the counter, unlike individual bonds. 

Bond ETFs effectively allow investors the ease and transparency that comes with stock trading. Bond ETFs are also more liquid than mutual funds or individual bonds. Investors have the option of trading them if the underlying bond market is not performing well.

They pay interest in the form of monthly dividends to investors. Any capital gains made by the ETFs are paid to investors through annual dividends.

Best Short-Term Bond ETF in Canada

Government of Canada Marketable Bonds - Average Yield - 1 to 3 Year
Government of Canada Marketable Bonds – Average Yield – 1 to 3 Year
Source: Bank of Canada

Short-term bond ETFs reduce the exposure of risk to your capital but they offer you the possibility of an adequate return on your investment. They traditionally take one to three years to mature. Due to a closer maturity date, there is a smaller chance of being adversely affected by interest rate hikes or other similar events. It also constitutes a lower credit risk.

Here are a few short-term bond ETFs you can consider:

1. iShares Core Canadian Short-Term Bond Index ETF (XSB)

  • Market Symbol: XSB
  • Average Duration: 2.7 years
  • Yield to Maturity: 2.7%
  • Assets Under Management: $2.2 billion

The bond ETF seeks to provide income by recreating the performance of the FTSE Canada Short-Term Overall Bond Index net of expenses.

2. BMO Short Corporate Bond Index ETF (ZCS)

  • Market Symbol: ZCS
  • Average Duration: 2.8 years
  • Yield to Maturity: 2%
  • Assets Under Management: $1.2 billion

The Bond ETF has been designed to replicate the performance of the FTSE TMX Canada Short-Term Corporate Bond Index net of expenses. It offers investors the advantage of corporate bonds over government bonds or portfolios that mix government and corporate debt. 

3. Vanguard Canadian Short-Term Bond Index ETF (VSB)

  • Market Symbol: VSB
  • Average Duration: 2.7 years
  • Yield to Maturity: 1.9%
  • Assets Under Management: $1.1 billion

Vanguard Canadian Short-Term Bond Index ETF seeks to track the performance of the Bloomberg Barclays Capital Global Aggregate Canadian Government/Credit 1-5 year Float Adjusted Bond Index. It primarily invests in public, investment-grade fixed-income securities issued in Canada.

4. Vanguard Canadian Short-Term Corporate Bond Index ETF (VSC)

  • Market Symbol: VSC
  • Average Duration: 2.8 years
  • Yield to Maturity: 2.3%
  • Assets Under Management: $1.2 billion

The Vanguard Canadian Short-Term Corporate Bond Index ETF seeks to replicate the performance of the Canadian credit bond index with a short-term dollar-weighted average maturity. It is currently tracking the Bloomberg Barclays Global Aggregate Canadian Credit 1-5 Year Float Adjusted Bond Index. It primarily invests in public, investment-grade non-government fixed income securities issued in Canada.

Related Reading: Best ETFs in Canada

Best High-Yield Bond ETFs

High-yield bond ETFs invest in corporate bonds that come with a lower credit rating. These are considered to be bonds that are below investment grade or even called “junk” bonds. 

While the name suggests something very negative, it does not necessarily indicate the type of returns that your investment can realize with them. The higher-risk involved does offer higher returns than funds that invest in bonds with lower yields in both government and corporate sectors.

There is a more substantial risk of default among the issuing companies – hence the high-return/high-risk scenario. There are thousands of companies represented in the funds. Defaults can lower the overall return on high-yield bond ETFs.

5. iShares iBoxx $ High Yield Corporate Bond ETF (HYG)

  • Market Symbol: HYG
  • Average Duration: 2.81 years
  • Yield to Maturity: 5.58%
  • Assets Under Management: $18.01 billion

It was the first mover in the high-yield corporate bond market. It has long been one of the most significant and liquid junk bond ETFs. Its core exposure through the iBoxx index it tracks is solid, and it covers the most liquid segment of the junk bond market.

6. SPDR Barclays High Yield Bond ETF (JNK)

  • Market Symbol: JNK
  • Average Duration: 3.07 years
  • Yield to Maturity: 5.88%
  • Assets Under Management: $9.69 billion

SPDR Barclays High Yield Bond ETF is a significant and popular corporate bond fund. This ETF has a portfolio that is among the broadest in its segment. The fund trades well and it has a substantial asset base. It competes most directly with HYG, which is also substantial and liquid itself.

7. Invesco Senior Loan (BKLN)

  • Market Symbol: BKN
  • Average Duration: 5.15 years
  • Yield to Maturity: 5.99%
  • Assets Under Management: $3.81 billion

The Invesco Senior Loan ETF is based on the S&P/LSTA U.S. Leveraged Loan 100 Index. The fund normally invests at least 80% of its total assets in the component securities that the index consists of. The index is designed to track the market-weighted performance of the largest institutional leveraged loans. These are loans based on market weighting, spreads, and interest payments.

8. iShares Broad USD High Yield Corporate Bond ETF

  • Market Symbol: USHY
  • Average Duration: 5.50 years
  • Yield to Maturity: 5.92%
  • Assets Under Management: $4.45 billion

Made for long-term investors, this bond ETF offers investors cheap exposure to the US high-yield corporate bond market. Compared to HYG and JNK, it holds twice as many issues from more than twice as many issuers. It holds securities primarily from smaller issuers which increases its potential for yield.

Related Reading: Vanguard Canada Overview

Buy bond ETFs for free with Questrade here

Best Corporate Bond ETFs

These are the bond ETFs issued by companies with investment grade credit ratings. The bonds in corporate bond ETFs can be issued by corporations from a wide array of industries.

9. iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)

  • Market Symbol: LQD
  • Average Duration: 13.70 years
  • Yield to Maturity: 2.98%
  • Assets Under Management: $46.22 billion

LQD is one of the most popular corporate bond ETFs with massive liquidity and substantial assets under management. It is reputed for its broad portfolio of bonds from the Markit iBoxx USD Liquid Investment Grade Index, whose underlying liquidity might contribute to tight tracking and subdued discounts. LQD only selects bonds that have at least three years to maturity.

10. Vanguard Short-Term Corporate Bond ETF (VCSH)

  • Market Symbol: VCSH
  • Average Duration: 2.64 years
  • Yield to Maturity: 2.20%
  • Assets Under Management: $24.08 billion

VCSH is a short-term corporate bond that matures within 1-5 years. It seeks to track the performance of a market-weighted corporate bond index with a short-term dollar-weighted average maturity. The fund employs an indexing investment approach designed to track the performance of the Bloomberg Barclays US 1-5 Year Corporate Bond Index.

11. Vanguard Intermediate-Term Corporate Bond ETF (VCIT)

  • Market Symbol: VCIT
  • Average Duration: 6.14 years
  • Yield to Maturity: 2.73%
  • Assets Under Management: $27.40 billion

The investment seeks to track the performance of a market-weighted corporate bond index with an intermediate-term dollar-weighted average maturity. The fund employs an indexing investment approach designed to track the performance of the Bloomberg Barclays US 1-5 Year Corporate Bond Index. The index includes US dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, financial, and utility companies.

12. iShares Canadian Bond Index ETF (XCB)

  • Market Symbol: XCB
  • Average Duration: 9.12 years
  • Yield to Maturity: 2.59%
  • Assets Under Management: $1.85 billion

The iShares Canadian Corporate Bond Index ETF seeks to provide income. It invests in the Index Shares underlying the FTSE T<X Canada All Corporate Bond Index.

Related Reading: Best Investments in Canada

Best Global Bond ETF in Canada

Global bond ETFs provide exposure to fixed-income securities from around the world. These ETFs invest in bonds that can include both government-issued and corporate bonds. Depending on the ETF, there might be a preference in terms of time to maturity for the bond as well as the desired yield. Most of these are also attempting to take advantage of changing interest rates and currency values to improve returns.

13. Invesco Global Short Term High Yield Bond ETF (PGHY)

  • Market Symbol: PGHY
  • Average Duration: N/A
  • Yield to Maturity: N/A
  • Assets Under Management: $181.86 million

The Invesco Global Short Term High Yield Bond ETF is based on the DB Global Short Maturity High Yield Bond Index. It invests at least 80% of its total assets in US and foreign short-term non-investment grade bonds that the index consists of. The index provider chooses bonds issued by corporations, sovereign, sub-sovereign, or quasi-government entities.

14. First Trust SSI Strategic Convertible Securities ETF (FCVT)

  • Market Symbol: FCVT
  • Average Duration: N/A
  • Yield to Maturity: N/A
  • Assets Under Management: $149.85 million

The First Trust SSI Strategic Convertible Securities ETF invests at least 80% of its net assets in a portfolio of US and foreign convertible securities. The fund may also invest in convertible securities of any credit quality, including unrated securities and below investment grade securities with effective or final maturities of any length.

15. First Trust Institutional Preferred Securities and Income ETF (FPEI)

  • Market Symbol: FPEI
  • Average Duration: N/A
  • Yield to Maturity: N/A
  • Assets Under Management: $254.1 million

The First Trust Institutional Preferred Securities and Income Exchange Traded Fund seeks a high level of current income by investing in institutional preferred and income-producing debt securities. It uses a multivariate approach, screening companies on several fundamental equity characteristics, including historical and expected rates of earnings growth.

16. Anfield Universal Fixed Income ETF (AFIF)

  • Market Symbol: AFIF
  • Average Duration: N/A
  • Yield to Maturity: N/A
  • Assets Under Management: $89.00 million

Anfield Universal Fixed Income ETF is an actively managed bond ETF that holds a wide array of fixed income securities. The fund invests across several sectors, markets, maturities, and credit ratings. The fund typically holds securities of issuers with a range of credit ratings and stable or improving fundamentals.

Related Reading: Best Real Estate Investments in Canada

Buy bond ETFs for free with Questrade here

Best Emerging Market Bond ETFs in Canada

An Emerging Market Bond ETF consists of fixed income debt issues from countries that have developing economies. These can include government and corporate-issued bonds in Asia, Latin America, Africa, and other countries. 

The emerging market bonds usually offer higher returns as opposed to traditional bonds because they are riskier than the bonds from developed countries. The fact that developing countries tend to grow much quicker also contributes to higher potential returns.

They allow investors to diversify positions in emerging market bonds like a mutual fund, but it trades like a stock. If the underlying bonds in the ETF perform well, the ETF does as well.

17. iShares JPMorgan USD Emerging Markets Bond ETF (EMB)

  • Market Symbol: EMB
  • Average Duration: N/A
  • Yield to Maturity: N/A
  • Assets Under Management: $12.06 billion

iShares JPMorgan USD Emerging Markets Bond ETF tracks an index of US dollar-denominated sovereign debt issued by emerging market countries with more than $1 billion outstanding and at least two years remaining in maturity. The fund typically favors longer maturities and tends to lean toward relatively higher risk. It offers substantial liquidity, making it a strong pick for traders.

18. SPDR Bloomberg Barclays Capital Emerging Markets Local Bond ETF (EBND)

  • Market Symbol: AFIF
  • Average Duration: N/A
  • Yield to Maturity: N/A
  • Assets Under Management: $870.33 million

SPDR Bloomberg Barclays Capital Emerging Markets Local Bond ETF tracks a market value-weighted index of fixed-rate, local currency sovereign debt from emerging markets. The exclusion of the ultra short term end of the market makes it a relatively incomplete view of the broad market.

19. Invesco Emerging Markets Sovereign Debt Portfolio (PCY)

  • Market Symbol: PCY
  • Average Duration: N/A
  • Yield to Maturity: N/A
  • Assets Under Management: $2.59 billion

This bond ETF targets US dollar-denominated emerging market sovereign debt with at least three years to maturity. Its underlying index imposes additional liquidity and relative value screens that set it apart from other US dollar-denominated funds.

20. Vanguard Emerging Markets Government Bond ETF (VWOB)

  • Market Symbol: VWOB
  • Average Duration: N/A
  • Yield to Maturity: N/A
  • Assets Under Management: $1.46 billion

Vanguard Emerging Markets Government Bond ETF limits its scope to US dollar-denominated emerging market debt. Investors can avoid any direct impact from currency volatilities. Avoiding locally denominated issues limits the impact of currency volatilities on portfolio returns.

Buy bond ETFs for free with Questrade here

How to Buy Bond ETFs in Canada

There are many ways to buy bond ETFs in Canada. My preferred and usually the cheapest way is by using a discount broker.

I use the discount broker Questrade for all my stock and ETF trading. You can purchase all the bond ETFs mentioned at no charge on its trading platform.

Get $50 in free stock trades with this offer when you open an account at Questrade.

Conclusion

Just like stocks, bond ETFs also have ticker symbols that you can use to place a trade. Before you buy one, you should know that bond ETFs are also typically tied to an underlying index and seek to track the performance of that index. 

Many times, a bond fund will have investments in many of the same entities that the underlying index fund has.

If you’re new to investing and want to learn more, check out my guide on how to start investing in Canada.

best bond etfs in canada

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<a href="https://wealthawesome.com/author/christopher-liew/" target="_self">Christopher Liew, CFA</a>

Christopher Liew, CFA

Creator of Wealth Awesome

A Canadian CFA Charterholder with 11 years of finance experience and the creator of Wealthawesome.com. Read about how he quit his 6-figure salary career to travel the world here.

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