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Number Cruncher

Stock screens for investment ideas from professional investors. Exclusive to subscribers of Globe Unlimited.

Number Cruncher

Top Canadian bond funds: A great run, but be wary Add to ...

What we’re looking at

Top-performing Canadian bond funds. Technically speaking, the best of the bunch in the Canadian fixed income, Canadian short-term fixed income and Canadian long-term fixed income categories.

Our screen

We started with all Canadian bond funds that had a history going back 10 years or more and then zeroed in on funds that ranked in the first- or second-quartile returns for the 12 months and 10 years to April 30. Quartiles divide funds in a category into four groups by performance – one is best and fourth is worst.

Funds are ranked here from highest average annual 10-year return on down.

What we found

The numbers shown here are, let’s be honest, spectacular. There are funds on this list that have delivered returns similar to what you might conservatively expect from equity funds. If you own any of these funds, enjoy the glow. If you’re thinking of putting new money into bond funds, beware.

There’s a sharp divide these days in the interest rate outlook between people who see rates rising and those who seem rates holding steady. Either way, you should expect bond funds to perform markedly worse in the years ahead than they have in the past decade.

Remember this basic piece of investing background: Falling interest rates send bonds and bond funds higher in price, rising rates mean lower prices and stable rates mean your returns will be in line with the yield on government and corporate bonds (2 to 3 per cent for the most part right now) minus fees. Interest rates have largely declined in the past decade, and that has provided a huge tailwind for bond funds. Unless the global economy collapses, we simply won’t see rates fall in the years ahead. They may very well rise, which could mean losses from bond funds.

Virtually all investors need bonds in their portfolios to act as a cushion when stock markets plunge. But overemphasizing bond funds because they’re performed so well is a mistake. Past returns will not be repeated any time soon.

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Top-Performing Canadian Bond Funds

Fund Assets ($ thousands) MER Minimum initial investment ($)
Beutel Goodman Long Term Bond-D 288.5 0.79 5,000
Mandate National Mortgage Corp 7.5 2 5,000
Beutel Goodman Corp/Pro Active Bd-D 194.3 0.79 5,000
Altamira Long Term Bond 255 1.24 1,000
SEI Canadian Fixed Income-O 1,948.10 0.11 150,000
Integra Bond 182.5 1.12 10,000
Beutel Goodman Income-D 1,931.60 0.79 5,000
PH&N Bond-D 864.1 0.61 25,000
Harmony Cdn Fixed Income Pool-W 62.3 0.17 50,000
PH&N Total Return Bond-D 787 0.6 25,000

Source: Globeinvestor.com


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