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Chalk up another one for ETF innovation in Canada. This week, First Asset launched three new bond ETFs that are the first of their kind in North America. And unlike some innovations in the ETF world, this one doesn’t involve any exotic, expensive and opaque derivatives. On the contrary, it uses a simple fixed-income strategy [...]
Chalk up another one for ETF innovation in Canada. This week, First Asset launched three new bond ETFs that are the first of their kind in North America. And unlike some innovations in the ETF world, this one doesn’t involve any exotic, expensive and opaque derivatives. On the contrary, it uses a simple fixed-income strategy that’s been around for decades.
The new First Asset funds use what’s called a barbell strategy, which involves holding equal amounts of short-term and long-term bonds, with no allocation to intermediate maturities. According to the index methodology, the ETFs hold 50% of their assets in bonds with maturities between one and two years, and 50% in bonds that mature in 10 to 20 years. The short-term bucket includes both regular fixed-coupon bonds and floating-rate notes, which have coupons tied to prevailing rates. (The benefit of floating-rate notes is that they have extremely low interest rate risk: if rates rise, their prices remain more or less stable.)
| Yield | Maturity | Duration | |
| iShares DEX Universe Bond (XBB) | 2.27% | 9.8 | 6.9 |
| First Asset DEX All Canada Bond Barbell (AXF) | 2.20% | 8.4 | 5.4 |
| iShares DEX All Government Bond (XGB) | 1.99% | 10.2 | 7.3 |
| First Asset DEX Gov’t Bond Barbell (GXF) | 1.98% | 8.3 | 5.3 |
| iShares DEX All Corporate Bond (XCB) | 3.02% | 8.8 | 6.1 |
| First Asset DEX Corporate Bond Barbell (KXF) | 2.91% | 9.0 | 5.6 |
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