Don’t let anyone tell you we have a bull market for everything.
Bonds are most assuredly not in a bull market. The benchmark FTSE Canada Universe Bond Index was down about 2.5 per cent for the year through the first week of September. That’s an improvement from a few months back, yet also a huge disappointment after a couple of quite good years for bonds.
How are investors reacting? There’s a strong appetite for stocks, of course. And the investors buying asset allocation exchange-traded funds – basically a diversified portfolio in a single package – are favouring a mix with a definite tilt to stocks over bonds. Yet demand for bonds is still strong, if you judge by flows of money into bond ETFs. National Bank Financial reports that $905-million poured into this category last month and $6.3-billion over the first eight months of the year. By comparison, $3.5-billion went into stocks in August and $21.5-billion for the year to date.
Where’s this bond-focused money going? Here are the four bond ETFs that took in the most money for the year through Aug. 31:
- BMO Aggregate Bond Index ETF (ZAG-T): A good low-cost option for the investor who wants exposure to the entire bond market in a single product, including government and investment-grade corporate bonds maturing in the short, medium and long term.
- BMO Government Bond Index ETF (ZGB-T): The management expense ratio, at 0.17 per cent, is almost double ZAG’s 0.09 per cent and the price of government bonds is more vulnerable to rate increases than corporates.
- iShares Core Canadian Short Term Bond Index ETF (XSB-T): A more conservative spin on a broad-market bond ETF like ZAG and the iShares Core Canadian Universe Bond Index ETF (XBB). By holding a mix of government and corporate bonds that mature in five years or less, XSB offers a degree of protection from rising rates. Basically, short-term bond prices should fall less than longer-term bonds as rates ratchet higher.
- iShares Core Canadian Short Term Corporate Bond Index ETF (XSH-T): Like XSB, but with a pure focus on corporate bonds. Corporates carry more default risk than government bonds, even those that are financially strong enough to get an investment-grade credit rating. The offset is a mildly higher yield, and a little less downside when interest rates rise.
-- Rob Carrick, personal finance columnist
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Question: I have just changed my RRSP into a RRIF. At this point, my husband and I don’t need the extra money that I can access in this account. What I would like to do, instead, is transfer stock shares out of the RRIF account and put them in my tax-free savings account. I would like to do this instead of putting in the allowed yearly $6,000. I realize I would only be allowed the equivalent of $6,000 with my transferred shares. Is this doable?
Answer: Sorry, this idea won’t fly. You can’t transfer assets from a registered retirement income fund or a registered retirement savings plan directly into a TFSA. If you could, everyone would do it because RRSP/RRIF withdrawals are taxable whereas those from a TFSA are not.
The only way to do this is to make an in-kind transfer of the shares to a non-registered brokerage account and be assessed tax on the value withdrawn from the RRIF. Then you could transfer the shares into a TFSA.
The bottom line is that any RRSP/RRIF withdrawals in any form are taxable.
What’s up in the days ahead
Rob Carrick looks at the performance of Canada’s first retirement ETF on its first anniversary.
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