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Number Cruncher

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In bad times, boring can be beautiful Add to ...

WHAT ARE WE LOOKING FOR ? How those boring Canadian bond funds are doing in this bear market. You may recall how the returns of these fixed-income securities looked so measly compared with many Canadian stock funds during the bull market of recent years. You may have even ditched, or ignored bond funds. TODAY'S SEARCH We examined the 2008 returns of Canadian fixed-income funds to find the best and worst performers. We also looked at the annual returns of bond funds, including the previous bear market years of 2001 and 2002. We excluded segregated, pooled, U.S.-dollar, and duplicate versions of the funds, as well as those valued monthly. WHAT DID WE TURN UP ? Boring can be beautiful in bad times. Looking at how plodding, fixed-income securities have performed in bear markets, it's a lesson to investors to have some of that boring stuff in an investment portfolio. You never know how fast the stock market can collapse, as it has done recently. Both the stars and the dogs among Canadian bond funds - yes, some lost money - beat the S&P/TSX composite index's 32.4-per-cent loss by a wide margin last year. The index had actually fallen by about 40 per cent before a year-end rally. The top 15 performers included four index or exchanged-traded (ETF) bond funds. This group also got a nice lift from their low fees or management expense ratios (MERs). The iShares Canadian Short Bond Index, which has an MER of 0.25 basis points, rose 8 per cent last year. (A basis point is 1/100th of a percentage point.) The RBC Canadian Bond Index, which gained 11.1 per cent last year, has an MER of 63 basis points. The fund, overseen by Suzanne Michele Gaynor, tracks the RBC DS Government of Canada Bond Market Index.

Some of the ones in the red were corporate bond funds. They hold bonds issued by corporations, and these securities have plunged on concern about rising defaults in a weak economy. The other group is Canadian inflation-protected fixed-income funds, more commonly known as "real return" bond funds in Canada. They hold government fixed-income securities, whose returns are hedged against inflation and have struggled amid expectations of a deflationary environment. Their returns are also eaten up by slightly higher fees. Altamira Inflation-Adjusted Bond, which lost 2.3 per cent, has an MER of 2.03 per cent. Still, the worst return among Canadian bond funds was not as painful as the red ink in many Canadian equity funds. TD Corporate Bond Capital Yield may have shed 8 per cent, but that might seem like a measly loss compared with the stock alternatives.


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