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portfolio strategy

Some high-powered names appear in the latest instalment of The Globe and Mail's 2016 ETF Buyers' Guide.

Bond funds are the focus here and the list of companies offering them now includes Toronto-Dominion Bank, mutual fund giant Mackenzie Investments and Questrade, a fast-growing independent financial services firm. More competition is always good for investors, but it also means more research for investors to choose appropriate exchange-traded funds.

The ETF Buyer's Guide is designed to help in the research process by highlighting key characteristics of core funds for portfolio building that are listed on the TSX.

Previous instalments of the Guide have covered Canadian and U.S. equity ETFs. Still to come are international equity ETFs and dividend/income funds for the Canadian and global markets.

Bond ETFs are a low-cost way to get diversified exposure to government and corporate bonds. The one complication is that, whereas an actual bond matures and repays your principal, the typical bond ETF never matures. Instead, it rides interest-rate trends over the years, typically increasing in value when interest rates retreat and falling in value when rates rise.

A key variable in choosing bond ETFs is yield, which can be measured in a few different ways.

Used here is yield to maturity after fees, which is the best estimate of what yield you can expect looking forward.

Here are the other terms you'll find in the ETF Buyer's Guide.

  • Assets: Shown to give you a sense of how interested other investors are in a fund; unless they’re new, the smallest funds may be candidates for delisting.
  • Management expense ratio: The main cost of owning an ETF on an ongoing basis; as with mutual funds, published returns are shown on an after-fee basis.
  • Average 30-day daily trading volume: Trading of fewer than 10,000 shares a day on average tells you an ETF isn’t generating much interest from investors, or that it’s new and still trying to build a following.
  • Top sector weightings: Federal and provincial government bonds offer the least default risk and the lowest yields; corporate bonds offer more default risk, but higher yields. Note the heavy weighting in the financial sector that many corporate bond ETFs have.
  • Average duration: Duration, measured in years, is a standard risk indicator for bonds; if interest rates rise by one percentage point, the price of an ETF with a duration of five would fall five percentage points (and vice versa if rates fell). The higher the duration, the more risk there is if rates rise.
  • Returns: ETF companies typically show total returns, or share price change plus interest payments, or distributions.

Click here to download an excel version of the table.

*Management fee only as this fund is too new to have calculated an MER yet; MER will be slightly higher. Source: ETF company websites,

Click here to download an excel version of the table.