Investing in Exchange Traded Funds (ETFs) is a convenient way for investors to gain exposure to an asset class. ETFs also give apt diversification with minimal risk. Amid the ongoing economic uncertainty, investors can choose to invest in high-quality bonds or ETFs based on them. iShares 1-5 Year Laddered Corporate Bond Index ETF (TSE:CBO) and BMO Em Mkt Bond HED (TSE:ZEF) are two such ETFs that invest in high-grade bonds with medium to long-term maturity. Let’s look at the two ETFs in detail.
iShares 1-5 Year Laddered Corporate Bond Index ETF (TSE:CBO)
The iShares 1-5 Year Laddered Corporate Bond Index ETF seeks to replicate the performance and returns of the FTSE Canada 1-5 Year Laddered Corporate Bond Index. This index invests in a portfolio of corporate bonds of Canadian companies that carry laddered maturities from one to five years.
The CBO ETF provides access to investment-grade bonds with monthly cash distributions. Currently, CBO pays a monthly dividend of C$0.05 per unit, carrying a yield of 2.19%.
Founded in 2009, CBO has an expense ratio of 0.28% and AUM (assets under management) of $709.90 million. As of date, CBO ETF has 369 holdings, with its top ten holdings contributing 13.34% of its overall portfolio. The top three holdings include bonds of the Royal Bank of Canada, AIMCo Realty Investors LP, and Toronto-Dominion Bank. Year-to-date, CBO ETF has returned 5.6%.
BMO Em Mkt Bond HED (TSE:ZEF)
The BMO Emerging Markets Bond Hedged to CAD Index ETF seeks to replicate the performance of the Barclays Emerging Markets Tradable External Debt (EMTED) GDP Weighted Capped Index CAD Hedged. The index invests in a pool of a diversified range of U.S. dollar-denominated sovereign debt from issuers in emerging markets. The US dollar exposure is hedged back to Canadian dollars.
The bonds typically carry a maturity life of 18 months to 10 years. The ZEF ETF is suitable for investors seeking high income with low risk since these investments are made in high-quality sovereign bonds. ZEF also has a monthly distribution pattern with its current distribution yield of $0.045 per unit.
ZEF was founded in 2010 and carries an expense ratio of 0.55%. As of date, its AUM stands at $624 million, with the top ten holdings contributing 34.54%. ZEF’s top three holdings include the Government of China 2.125% 03-Dec-2029 bond, the Government of Brazil 3.875% 12-Jun-2030 bond, and Perusahaan Penerbit SBSN Indonesia III 4.15% 29-Mar-2027 bond. Year-to-date, ZEF has returned 4.7%.
Ending Thoughts
Investing in high-grade bond-based ETFs could provide investors a safe haven investment option amid the uncertain macro environment. The CBO and ZEF ETFs could be considered by investors to gain such exposure after thorough research.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
