Skip to main content
Welcome to
super saver spring
offer ends april 20
save over $140
save over 85%
$0.99
per week for 24 weeks
Welcome to
super saver spring
$0.99
per week
for 24 weeks
// //

iStockphoto/Getty Images/iStockphoto

Investors looking for higher yields in their bond portfolio can look to a new exchange-traded fund that focuses entirely on the Canadian municipal bond market.

Horizons ETFs Management (Canada) Inc. adds to its fund lineup with the launch of Horizons Active Cdn Municipal Bond ETF, which will begin trading on the Toronto Stock Exchange on Thursday.

With a management fee of 0.35 per cent, the actively managed ETF provides investors the opportunity to tap into the municipal bond market by primarily investing in a portfolio of Canadian municipal bonds, such as those of the City of Sherbrooke.

Story continues below advertisement

"Municipal bonds offer investors an attractive risk-return profile because they have a low risk of default but are higher yielding than other types of Canadian government and provincial bonds," Howard Atkinson, president of Horizons ETFs, said in a statement.

Municipal bonds, often referred to as "munis," are debt securities issued by a city, municipality or county to finance local capital expenditures such as the construction of bridges, highways, airports or schools.

Canadian investors should be aware that while municipal bonds in the United States offer an attractive tax advantage, the same does not cross over into the Canadian market.

They do, however, provide an advantage to those investors looking for a low-risk opportunity, said François Bourdon, chief investment solutions officer at Fiera Capital Corp.

"There hasn't been a default of a municipality since the 1950s," Mr. Bourdon said. "Municipal offerings are extremely stable."

In addition, investors can get higher yields than a corporate bond – in some cases more than 0.40 per cent.

"The City of Sherbrooke is trading at 2.26 per cent while a five-year bank bond is around 1.80 per cent," Mr. Bourdon said.

Story continues below advertisement

The size of the municipal-bond market in Canada is approximately $40-billion – with approximately $24-billion of that in rated issues (issues that have received a debt rating from an agency). These issues are predominantly from large municipalities such as Toronto, York Region in Ontario, Vancouver, Montreal and Edmonton.

Non-rated bonds – municipal bonds that have not been rated by a third-party credit-rating agency – are generally issued by mid-sized municipalities and offer a slightly higher yield than the rated debt of larger Canadian cities

Currently, non-rated bonds represent approximately $16-billion, or 40 per cent of the market, according to Fiera, which is sub-advising on the ETF.

Up to 75 per cent of Horizons Active Cdn Municipal Bond ETF's portfolio can be invested in non-rated Canadian municipal bonds.

"There is tremendous opportunity in the non-rated category and an experienced fixed-income manager can apply credit analysis to identify quality issuers with above-average yields and high credit quality," Mr. Atkinson added.

Investors can find broader exposure to the government bond market in several ETFs already on the Canadian market.

Story continues below advertisement

IShares Canadian Universe Bond Index ETF includes a diversified selection of provincial, corporate and municipal bonds – although only 1.79 per cent of holdings is in municipal bonds.

Others include: iShares Canadian Government Bond Index ETF, which includes government bonds with an investment-grade rating, and BMO Long Federal Bond Index ETF, which holds securities primarily with a term to maturity greater than 10 years.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies