For the first half of 2024, though, we’re happy to report the bond market has righted itself. If you bought a bond exchange-traded fund (ETF) when interest rates were peaking last fall, you might even have a small capital gain to your credit by now (in addition to interest income). And should rates decline as many market-watchers expect over the next 12 months, bond ETFs could end up doing very nicely indeed on a risk-adjusted basis with further capital appreciation.
The brighter outlook is reflected in our panel’s fund recommendations this year. The top vote-getters were, respectively, the BMO and TD Canadian Aggregate Bond Index ETFs, which cover the gamut of short-, medium- and long-term bond holdings. Beyond that, the consensus broke down somewhat. There was a tie for third place between iShares Core Canadian Short Term Bond Index ETF (XSB) and iShares Core Canadian Long Term Bond Index ETF (XLB), reflecting differing views on the interest-rate outlook.
Our top pick in 2023, XSB could be the safe option, with reduced duration risk. XLB is worth considering if you’re really sold on the falling-interest-rate thesis. It presents the possibility of delivering most of your return in the form of capital gains—a tax-efficient strategy in non-registered accounts. If rates rise, the value of XLB could decline.
“It seems that the bond market in 2024 continues to exhibit topsy-turvy dynamics, with yields on short-term bonds exceeding those of longer-term bonds,” panellist Mark Seed notes. “While I anticipate there is going to be a slow downward trend in the latter part of 2024, 2025 and into 2026 for interest rates, potentially for these reasons, investors might consider a mix of bond durations instead of just typical short-term bonds for safety, assuming that meets their tolerance for investing risk and broader investment objectives.”
In the table below, you’ll find the best fixed-income ETFs in Canada, as judged by our panel. Slide the columns right or left using your fingers or mouse to reveal more data. You can download the data to your device in Excel, CSV and PDF formats.
Best fixed-income ETFs in Canada
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