Investing in fixed-income securities like bonds and Guaranteed Income Certificates (GICs) is a relatively lower-risk method to get reliable investment returns.
It could be an excellent method to protect your investment capital during uncertain market environments.
Suppose that you are new to investing or have too many investments to manage in your self-directed portfolio. In that case, it might be too much effort to build and maintain a portfolio of bonds.
Bond-focused ETFs offer you the chance to invest in a basket of investment-grade bonds without the hassle of creating and managing a portfolio of them yourself.
My iShares XBB ETF review will cover a bond-focused ETF that offers regular and predictable monthly passive income.
It could be an excellent product for you to consider if you are interested in low-risk investments with monthly returns.
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.
- Offers virtually guaranteed monthly income
- Not prone to impact from volatility in the stock market
- Low-cost exposure to a wide group of investment-grade bonds
- Does not offer any exposure to equity securities
- Returns prone to change due to interest rates
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, 200, and boasts an extensive performance history that you can review as a reference for how it could perform in the future.
iShares XBB ETF is designed as a long-term core holding, and it offers regular monthly distributions. The fund boasts net assets worth $4.51 billion as of April 8, 2022.
iShares XBB ETF allocates its entire assets under management to investment-grade bonds without exposure to equity securities.
Its lack of exposure to equity securities means that it offers lower returns in terms of capital gains, relying only on the returns from the bonds it holds.
However, the lower returns come with the advantage of virtually guaranteed monthly distributions with a lower degree of capital risk in volatile market conditions.
iShares XBB ETF is a bond-focused fund with net assets worth over $4.51 billion as of April 8, 2022.
The fund is designed as a core holding that can act as a monthly passive income stream.
It seeks to provide you with income by tracking the performance of a broad group of fixed-income assets as reflected in the FTSE Canada Universe Bond Index.
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 does not offer you any exposure to equity securities, making it a lower-risk investment than many other funds listed on the TSX.
The fund diversifies into various bonds issued by the federal government and provincial government. It also allocates its funds to a wide range of corporate investment-grade bonds.
iShares XBB ETF’s top bond issuers comprise the Government of Canada, accounting for 22.7% of its asset allocation.
The Province of Ontario accounts for 14.80% of the bonds it allocates its funds to and the Canada Housing Trust No. 1 accounts for 9.79% of its asset allocation.
This section of my iShares XBB ETF review will cover the sector weightings of the fund’s assets.
iShares XBB invests in a broad group of investment-grade bonds, including government- and corporate-issued bonds. Here is a look at a graph that represents the sector weightings:
As of April 7, 2022, iShares XBB ETF allocates 35.87% of its assets to bonds issued by provincial governments.
It allocates 34.92% of its assets to investment-grade bonds issued by the federal government. Investment-grade bonds issued by the financial sector account for its third-largest asset allocation at 10.33%.
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 10.64 years as of April 7, 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 April 7, 2022, 20.69% of its holdings comprise bonds with maturities of more than 20.
18.52% of the fund’s holdings comprise bonds with seven to ten years till maturity. 18.27% of its holdings comprise bonds with three to five years left till maturity.
This section of my iShares XBB ETF review will cover the performance and returns of the bond ETF since its inception.
The fund started trading on the TSX on November 20, 2000, and it boasts an extensive performance history for you to review.
The chart above shows the growth of a hypothetical $10,000 invested in the fund since its inception on November 20, 2000.
Besides the dip in its returns over recent months due to lower interest rates, the fund’s returns have consistently increased over the years.
As of writing, a hypothetical $10,000 invested in iShares XBB ETF would be worth over $25,100.
The fund’s recent-most performance has dipped due to multiple macroeconomic factors impacting the Canadian bond market.
Still, its long-term performance is consistent and offers significant returns to investors.
iShares XBB ETF’s average annual returns over 10 years are 2.33% and 4.45% since the fund’s inception.
iShares XBB ETF is a low-cost fund that invests in a low-risk asset class, offering significant protection for your investment capital.
It is a fund with a lower risk rating compared with funds that invest in equity securities. Its underlying securities do not account for a significant portion of its Management Expense Ratio (MER).
The management fee for iShares XBB ETF is 0.09%, and its MER amounts to 0.10%.
As of April 7, 2022, iShares XBB ETF’s distribution yield is as follows:
- 12-month trailing distribution yield: 2.75%
- Distribution frequency: 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.
iShares XBB ETF boasts a 12-month trailing yield of 2.75%, and its distribution yield as of April 7, 2022, was 2.73%.
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 526 products as of April 7, 2022.
Its weighted average maturity stands at 3.02 years, and it boasts a yield of 2.10%. 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.
iShares XAGG ETF has a dividend yield of 1.74%. 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.
It boasts a 12-month trailing yield of 2.05%, but its distribution yield stands at 1.75% in recent months. It might not be a viable alternative to iShares XBB ETF.
The cheapest way to buy ETFs is from discount brokers. My top choices in Canada are:
|Wealthsimple Trade||Get $50 Signup Bonus|
|Questrade||Get $50 Free Stock Trades|
To learn more, check out my full breakdown of the best trading platforms in Canada here.
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 you 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.