The stock market turmoil of 2025 has provided a perfect illustration of the diversification benefits of fixed-income exchange-traded funds (ETFs). As equity funds plummeted, bond ETFs not only held their value but ticked upward. If you depend on your investments for income, or want to dampen volatility, bond ETFs could have a place in your portfolio.
Best fixed-income ETFs 2025
Though generally less volatile than equity funds, fixed-income ETFs nonetheless come in a range of risk and return profiles. The longer the duration of the bonds in the fund, the greater the risk and potential return. That’s probably why two short-term bond funds, the iShares Core Canadian Short Term Bond Index ETF (XSB) and Vanguard Short-term Canadian Bond ETF (VSB), came in tied for first and third, respectively, in our survey. These funds, which hold bonds maturing in five years or less, will be less volatile than average.
If you’re seeking higher yield and are prepared to put up with more ups and downs, our ETF judges chose the iShares Core Canadian Universe Bond Index ETF (XBB) and BMO Aggregate Bond Index ETF (ZAG) as well. These are blanket bond market funds that hold both government and corporate bonds across the full duration spectrum. These are not long-term bond ETFs, though, so Canadian investors should consider these to be moderate risk, moderate duration funds. In all cases these funds have low management expense ratios, which is important when medium term bond yields are under 4%.
Watch: ETF Academy Lesson 10
Michael is a financial writer and editor in Duncan, B.C. He’s a former managing editor of Canadian Business and editorial director of Canada Wide Media. He also writes for The Globe and Mail and BCBusiness.
