Looking to invest in fixed income without having to pick your own securities?
iShares XBB ETF might be the right choice for you to get easy access to fixed income.
Let’s go over this iShares XBB ETF review to see if it’s the right choice for you.
Invest In The Entire Canadian Bond Market
Invest in iShares XBB ETF to gain exposure to a broad range of Canadian investment-grade bonds that pay monthly cash distributions with a low degree of interest rate risk.
- Monthly income
- Low-cost exposure to a wide group of investment-grade bonds
- Sensitive to interest rate changes
iShares Core Canadian Universe Bond Index ETF (XBB) is a low-cost ETF that offers you a convenient method to invest in a comprehensive group of investment-grade government and corporate bonds trading in Canadian bond markets.
iShares XBB seeks to provide you with monthly income by replicating the performance of the FTSE Canada Universe Bond Index, net of expenses.
The fund began trading on the TSX on November 20, 2000.
XBB.TO is currently trading at close to $27.24.
XBB Key Facts
As of June 30, 2022:
- Ticker Symbol: XBB.TO
- Exchange: Toronto Stock Exchange
- Assets Under Management: $4.62 Billion
- MER: 0.10%
- 12-Month Trailing Yield: 2.89%
- Currency Traded: CAD
- Eligible Accounts: Most registered (TFSA, RRSP, etc) and non-registered available
The management fee for iShares XBB ETF is 0.09%, and its MER amounts to 0.10%.
As of July 18, 2022, iShares XBB ETF’s distribution yield is as follows:
- 12-month trailing yield: 2.86%
- Distribution yield: 2.86%
- Dividend schedule: Monthly
The fund is designed as an income-generating investment tool that offers monthly returns on your investment based on the performance of a bond index that covers a broad range of fixed-income securities.
The fund distributes monthly payments to shareholders based on the bond yields of its constituent securities. The returns come in at a lower yield compared to what you could get from higher-yield equity security ETFs.
Here’s the performance of a hypothetical $10,000 since iShares XBB’s inception:
As of June 30, 2022:
| 1y | 3y | 5y | 10y | Incept. | |
|---|---|---|---|---|---|
| Average Annual Return (%) | -11.53 | -2.42 | 0.07 | 1.51 | 4.12 |
| Benchmark (%) | -11.39 | -2.30 | 0.18 | 1.72 | 4.34 |
The underlying index consists of Canadian investment-grade bonds with various maturity periods, primarily investing in bonds with over 20 years of bond maturity left.
iShares XBB ETF’s top bond issuers comprise the Government of Canada, accounting for 24.23% of its asset allocation.
The Province of Ontario accounts for 14.18% of the bonds it allocates its funds to and the Canada Housing Trust No. 1 accounts for 9.79% of its asset allocation.
| Issuer | Weight (%) |
|---|---|
| CANADA (GOVERNMENT OF) | 24.23 |
| ONTARIO (PROVINCE OF) | 14.18 |
| CANADA HOUSING TRUST NO.1 | 9.79 |
| QUEBEC (PROVINCE OF) | 7.83 |
| ALBERTA (PROVINCE OF) | 3.20 |
| BRITISH COLUMBIA PROVINCE OF | 2.82 |
| MANITOBA PROVINCE OF | 1.57 |
| TORONTO-DOMINION BANK/THE | 1.54 |
| ROYAL BANK OF CANADA | 1.32 |
| SASKATCHEWAN (PROVINCE OF) | 1.25 |
As of July 19, 2022:
| Name | Sector | Weight (%) |
|---|---|---|
| CANADA (GOVERNMENT OF) | Federal | 1.57 |
| CANADA (GOVERNMENT OF) | Federal | 1.52 |
| CANADA (GOVERNMENT OF) | Federal | 1.39 |
| CANADA (GOVERNMENT OF) | Federal | 1.30 |
| CANADA (GOVERNMENT OF) | Federal | 1.13 |
| CANADA (GOVERNMENT OF) | Federal | 1.05 |
| CANADA (GOVERNMENT OF) | Federal | 1.03 |
| CANADA (GOVERNMENT OF) | Federal | 1.02 |
| CANADA HOUSING TRUST NO 1 144A | Federal | 0.91 |
| CANADA (GOVERNMENT OF) | Federal | 0.84 |
iShares XBB invests in a broad group of investment-grade bonds, including government- and corporate-issued bonds.
As of July 18, 2022, iShares XBB ETF allocates 36.42% of its assets to bonds issued by the federal government.
It allocates 35.02% of its assets issued by the provincial government. Investment-grade bonds issued by the financial sector account for its third-largest asset allocation at 10.26%.
| Type | Fund |
|---|---|
| Federal | 36.42 |
| Provincial | 35.02 |
| Financial | 10.26 |
| Energy | 5.70 |
| Infrastructure | 4.01 |
| Communication | 2.39 |
| Municipal | 2.19 |
| Real Estate | 1.83 |
| Industrial | 1.72 |
| Securitized | 0.41 |
| Cash and/or Derivatives | 0.04 |
| Other | 0.00 |
iShares XBB ETF invests in the entire Canadian bond market with maturity periods ranging from less than a year to bonds with over 20 years to maturity.
Its weighted average maturity is 10.32 years as of July 18, 2022. This section of my iShares XBB ETF review will provide a brief overview of the various bond maturities of the fund’s holdings.
As of July 18, 2022, 19.53% of its holdings comprise bonds with maturities of more than 20. 18.21% of the fund’s holdings comprise bonds with seven to ten years till maturity. 18.59% of its holdings comprise bonds with three to five years left till maturity.
| Type | Fund (%) |
|---|---|
| 0 – 1 Years | 0.06 |
| 1 – 2 Years | 12.75 |
| 2 – 3 Years | 11.36 |
| 3 – 5 Years | 18.59 |
| 5 – 7 Years | 8.94 |
| 7 – 10 Years | 18.21 |
| 10 – 15 Years | 5.46 |
| 15 – 20 Years | 5.05 |
| 20+ Years | 19.53 |
| Cash and Derivatives | 0.04 |
As of July 18, 2022:
| Type | Fund (%) |
|---|---|
| AAA | 37.64 |
| AA | 34.50 |
| A | 16.41 |
| BBB | 11.29 |
| Cash and/or Derivatives | 0.04 |
| Other | 0.12 |
iShares XGD has a low-risk indicator.
What Is The Dex Universe Bond Index?
The DEX Universe Bond Index was the name of the underlying index tracked by the iShares Core Canadian Universe Bond Index ETF.
The name of the index is now known as the Canadian Universe Bond Index as part of the FTSE TMX rebrand of the index as it became part of the FTSE TMX Canada Universe Bond Index Family.
This section of my iShares XSB ETF review will discuss a few funds that you could compare this product to as potential alternatives to investing in this bond ETF.
iShares Core Canadian Short Term Bond Index ETF (XSB) is a Canadian bond ETF issued by BlackRock Canada.
The low-cost fund offers narrower exposure to the Canadian investment-grade bond market than iShares XBB ETF. It pays monthly cash distributions and is designed as a core holding.
The fund tracks the performance of the FTSE Canada Short Term Overall Bond Index, net of expenses.
iShares XSB ETF invests in 534 products as of July 19, 2022.
As of July 18, 2022, its weighted average maturity stands at 3.19 years and boasts a yield of 2.18%. It might not be a viable alternative to iShares XBB as a monthly passive income investment.
iShares US Aggregate Bond Index ETF (XAGG) is another fund issued by BlackRock Canada that focuses entirely on investing in fixed-income securities.
The fund differs from iShares XBB because it focuses on investing in the investment-grade bond market in the US.
You can use it to diversify your portfolio in the US fixed-income securities market. It tracks the performance of the Bloomberg US Aggregate Bond Index, a fund that is broadly representative of the US dollar-denominated investment-grade bond market.
As of July 18, 2022, iShares XAGG ETF has a dividend yield of 1.40%. It might not be a viable alternative to iShares XBB as a monthly passive income investment.
Vanguard Canadian Short-Term Bond Index ETF (VSB) is a Canadian bond ETF that offers you exposure to the performance of a group of short-term Canadian fixed-income assets.
The fund tracks the Bloomberg Global Aggregate Canadian Government/Credit 1-5 year Float Adjusted Bond Index.
The fund invests in investment-grade fixed-income securities issued in Canada. It is also a low-cost fund that offers monthly distributions.
As of June 30, 2022, Vanguard’s VSB boasts a 12-month trailing yield of 2.12%, but its distribution yield has stood at 2.47% in recent months. It might not be a viable alternative to iShares XBB ETF.
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The cheapest way to buy ETFs is from discount brokers. My top choices in Canada are:
- 105 commission-free ETFs to buy and sell
- Excellent customer service
- Top-notch market research tools
- Easy-to-use and stable platform
- Stock and ETF buys and sells have $0 trading fees
- Desktop and mobile trading
- Reputable fintech company
- Fractional shares available
- ETF buys have $0 trading fees
- Excellent market research tools
- Most types of registered accounts available
To learn more, check out my full breakdown of the best trading platforms in Canada.
Conclusion: Is XBB a good ETF?
Diversifying your investment portfolio to add reliable fixed-income assets is a great way to mitigate some of the volatility in your investment returns due to the unpredictability of the performance of equity securities.
Investing in an ETF focused on providing your returns through a focus on a basket of bonds is an excellent way to generate predictable and reliable passive monthly income.
Investing in a bond ETF like iShares XBB ETF offers an easier method to diversify your investment capital across a group of low-risk securities.
iShares XBB ETF is a single-ticket solution to invest in a wide range of investment-grade bonds issued by Canadian issuers with various maturity periods.
The fund might not offer high-yielding returns like equity security ETFs. Still, it compensates for that by offering a lower degree of capital risk than investing in equity securities.
If you’re looking for more monthly dividend ETFs with relatively higher dividend yields, consider checking out my breakdown of the best monthly dividend ETFs in Canada.
Check out my breakdown of the best bond ETFs in Canada if you’re looking for a more comprehensive list of fixed-income ETFs you can consider.
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