Stock market investing is an excellent method to generate decent returns on your investments, but it comes with a significant degree of capital risk during volatile market conditions.
Investing in bonds gives you exposure to fixed-income assets that generate predictable returns.
It can be challenging to invest in bonds if you are unaware of how bond markets work or how to identify the best investment-grade bonds.
My iShares XSB ETF review will discuss an investment product that you could consider if you’re interested in investing in the bond market to generate fixed monthly income without the hassles of managing a bond portfolio yourself.
Invest In Canadian Short-Term Bonds
Invest in iShares XSB ETF to gain exposure to 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 group of investment-grade bonds
- Does not offer any exposure to equity securities
- Returns prone to change due to interest rates
iShares Core Canadian Short Term Bond Index ETF (XSB) is a low-cost Exchange-Traded Fund (ETF) that offers you exposure to the performance of a group of fixed-income securities with short maturity dates.
iShares XSB seeks to provide you with income by emulating the performance of the FTSE Canada Short Term Overall Bond Index before fees and expenses.
The fund’s inception was in November 2000, and there is a significant performance history to track so you can determine what to expect from the fund’s performance in the future.
Designed as a long-term core holding, iShares XSB ETF offers monthly distributions and boasts net assets worth $3.3 billion as of April 1, 2022.
iShares XSB ETF allocates its assets under management to Canada-listed fixed-income assets. It does not offer you any exposure to the equity security market. It means that it does not boast the return potential of the stock market.
The lower potential returns come with the safety of virtually guaranteed returns due to the low-risk nature of its asset class.
iShares XSB ETF is a bond-focused fund with net assets worth over $3.3 billion. The fund seeks to provide you with income by tracking the performance of a short-term bond index, which is the FTSE Canada Short Term Overall Bond Index in this case.
The underlying index comprises Canadian investment-grade bonds with maturities that range from one to five years.
iShares XSB ETF’s focus on fixed-income assets makes it a low-risk investment compared to funds that allocate assets to equity securities.
iShares XSB ETF primarily invests in various government-issued investment-grade bonds, totaling 528 individual products as of April 1, 2022.
Its top issuers comprise the Government of Canada, accounting for 27.06% of its asset allocation. Canada Housing Trust No.
1 is the second-largest issuer, accounting for 15.68% of its asset allocation. The Province of Ontario is the third-largest issuer, accounting for 9.56% of its asset allocation.
This section of my iShares XSB ETF review will cover the sector weightings of the fund’s assets.
iShares XSB invests in government-issued bonds and those issued by some of the top financial institutions in the country. Here is a look at a graph that represents the sector weightings:
As of April 1, 2022, iShares XSB ETF allocates 45.80% of its assets to federal government sector investment-grade bonds. It allocates 21.18% of its assets to financial sector bonds. Provincial government bonds account for its third-largest asset allocation at 19.37%.
iShares XSB ETF invests in investment-grade bonds with maturity periods ranging from one to five years.
Its weighted average maturity is 3.03 years as of April 1, 2022. This section of my iShares XSB ETF review will cover the various bond maturities of the fund’s holdings.
As of April 1, 2022, 43.60% of its holdings comprise bonds with a maturity of three to five years. 30.93% of the fund’s holdings comprise bonds with one to two years till maturity.
22.75% of its holdings are bonds with two to three years left till maturity. IT also allocates 1.96% of its assets to relatively long-term bonds with a maturity of seven to ten years.
This section of my iShares XSB ETF review will cover the performance and returns of the bond ETF. iShares XSB ETF is a low-risk investment that offers wealth growth through reliable and fixed monthly returns.
The fund’s inception date was November 20, 2000, and it boasts an extensive performance history that you can review.
The chart above shows the growth of a hypothetical $10,000 invested in the fund since its inception in November 2000.
Barring a slight decline in 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 XSB ETF would be worth almost $21,000.
The fund’s recent-most performance has dipped due to several macroeconomic factors impacting the returns of bond markets. However, its long-term performance is consistent. iShares XSB ETF’s average annual returns over 10 years is 1.48%.
iShares XSB ETF is a low-cost fund that invests in a low-risk asset class. It comes with a low risk rating, and its underlying securities do not account for a major part of its Management Expense Ratio (MER).
The management fee for iShares XSB ETF is 0.09%, and its MER amounts to 0.10%.
As of April 1, 2022, iShares XSB ETF’s distribution yield is as follows:
- 12-month trailing distribution yield: 2.10%
- Distribution frequency: Monthly
The fund is designed as an income-generating investment tool that offers monthly returns on your investment.
The fund distributes payments each month based on the bond yields of its constituent securities.
The returns come in at a lower yield compared to what you might expect from high-yielding equity security ETFs. iShares XSB ETF boasts a 12-month trailing yield of 2.10%, and its distribution yield as of March 31, 2022, was 2.09%.
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 Universe Bond Index ETF (XBB) is another Canadian bond ETF issued by BlackRock Canada.
The low-cost fund offers broad exposure to the Canadian investment-grade bond market and pays monthly cash distributions, making it a long-term core holding.
The fund tracks the performance of the FTSE Canada Universe Bond Index, net of expenses. iShares XBB ETF invests in 1,450 products as of April 1, 2022.
Its weighted average maturity stands at 10.73 years, and it boasts a yield of 2.70%. It could be a viable alternative to iShares XSB 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 XSB in that it offers broad exposure to the investment-grade bond market in the US. It comes in as a convenient solution to diversify your portfolio into the US fixed-income 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%.
Vanguard Canadian Short-Term Bond Index ETF (VSB) is another 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 in recent months stands at 1.75%. It might not be a viable alternative to iShares XSB as a monthly passive income fund.
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The unpredictability of the performance of equity securities can lead to uncertainty in your investment returns.
It is always a good idea to diversify your investment portfolio to introduce a degree of stability and reliability to your returns.
If you are looking for a way to generate consistent and predictable monthly returns through passive income, investing in a bond ETF like iShares XSB ETF would be an easy option for you to consider.
iShares XSB ETF is a single-ticket investment that lets you gain exposure to the performance of a basket of Canadian short-term bonds.
It might not offer the capital gains or dividend yield of equity ETFs, but it eliminates the risks that come with investing in those products.
If you’re looking for other monthly dividend-paying 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.