Tag: XBB

illustration of credit concept with money

The bond portion of my portfolio

RobH2 Comments

I’m a bit curious as to what’s under the hood of the category I refer to as “bonds” in my portfolio. I try to keep the level at 15% of my retirement net worth. Bonds have historically acted as a volatility reducer at the cost of overall performance. You can see that pretty clearly by comparing the performance of XEQT (100% equity) with XGRO (which holds the same equity funds, but less of them to make room for 20% bonds).

The drag on total return is pretty clear. And for this reason, 15% bonds is enough for me; adding to this is the other 5% of my portfolio which I call “cash” but is also actually very short term bonds.

But what kinds of bonds do I actually hold? I’m most interested in understanding a few parameters:

  • What kind of interest are they paying?
  • What is the duration of the bonds I hold? “Duration” means “when are these loans due”? The further in the future the loans are due, the more the bonds are impacted by changes in interest rates.
  • What’s the quality of the bonds I hold? “Quality” means “how creditworthy are the entities I’m loaning my money to”? Lower credit rating means higher yields, but greater risk of default. The least creditworthy are usually called “junk” bonds. The lower the credit rating, the more the bond begins to look like an equity ETF, with volatility to match. That’s not really what I’m looking for.

So the first thing to figure out is where my bonds are. Looking at my handy dandy asset tracker, (download a template here), I can check on my overall retirement allocation by ETF:

So from memory, I know that my bonds are held in XGRO (20% of that fund), and XCB. Let’s take a look at XGRO first. Heading over to the ETF fact sheet, you can quickly see what’s inside:

So to get to the bottom of this analysis, I have to look up what’s inside each of XBB, XSH, GOVT and USIG. I also hold XCB which is not a fund of funds, and by referring to its fact sheet so we can easily add construct the table below:

ETF symbolNamePercentage in portfolio Current yieldWeighted avg maturityQuality
XBBCanadian bond universe6.56%3.55%9.4 years89% A or above
XSHCanadian short term corporate bond1.55%4.01%3.24 years57% A or above
GOVTUS Treasury Bonds0.99%5.04%7.44 years100% A or above
USIGUS Broad investment grade0.98%5.97%9.70 years50% A or above
XCBCanadian Core Corporate4.4%4.26%7.96 years56% A or above
total/ weighted average14.5%4.08%8.18 years74% A or above

So a few comments on the results:

  • The percentage of bonds is actually sitting at 14.5%. I don’t track how closely XGRO keeps to its 20% target, I just assume that on average, that’s where it will be. But this calculation shows that there’s a bit of drift.
  • The Current Yield is as of October 14, 2026.
  • The weighted average maturity is meaningful because the longer the duration here, the more sensitive the bonds are to interest rate changes. 8 years isn’t super long, but in a rising interest rate environment, these holdings will suffer.
  • The quality is universally pretty high, with 75% rating A or above.
  • Missing in action are any bond holdings outside of the US and Canada, and even the US exposure is quite small.

My impression overall is that my bond holdings are quite conservative. Which I suppose is what they should be, but I am a little surprised how little the overall picture looks from what I consider cash, namely ZST. Here’s the table again, comparing my average bond holdings to ZST/ZMMK.

ETF symbolNameCurrent YieldWeighted avg maturityQuality
Average of bond holdingsXBB/ XSH/ GOVT/ USIG/ XCB4.08%8.18 years74% A or above
ZMMKMoney market2.38%0.22 years100% A or above
ZSTUltra short term2.59%0.36 years71.5% A or above

So here you see the improved yield picture compared to my “cash” holdings, which looks a bit better. I suppose I could look into adding some lower quality bonds1 to goose the yield a bit, but I’m not so keen on expanding the number of ETFs I hold. Less complexity is better than more, right?

  1. For example, ZJK (great ticker symbol, by the way) invests in much lower quality bonds. ↩︎

How to read an ETF fact sheet: what’s in a name?

RobHLeave a comment

Summary: The standard ETF fact sheet is 4 pages of information a Canadian ETF provider is required to provide. Here’s some tips about what to look for in a name.

Google AI, which is never wrong, tells me that there are more than 1500 ETFs available for purchase on the Canadian market. For those new-to-DIY-investing1, that can seem a little overwhelming. Most of my retirement holdings are tied up in just two asset-allocation ETFs, but prior to retirement, I enjoyed juggling a bunch of index ETFs to roll my own custom asset allocation that I rebalanced manually.

A good skill to have is to understand some of the basic language used in these fact sheets so you can decide if a given ETF is right for you and your investment objectives.

What’s the name of the ETF?

So much is captured in the full name of a given ETF. There’s key words I look for, and key words that I avoid.

Words I look for: “Index” or maybe “Idx”

An index is a list of assets that comply to a set of rules laid out by the index manager. You can think of an index as a detailed recipe for building a list of stocks or bonds. What’s important is that the index is not invented by the company selling you the ETF. The index is a third-party invention, and any ETF company can make use of the recipe in offering you, the investor, a product to buy. The index is the recipe, and the ETF company is the chef that prepares the dish that you buy. You could become a chef yourself, and buy the individual components of the index on your own. However, since some of the indices are comprised of hundreds or even thousands of assets, not every index is realistic for the home chef to create.

An ETF that uses the word “index” in its name suggests it’s a passive ETF, meaning there’s a skeleton crew of managers making trades based solely on what’s in the index. I like index funds because they are generally cheap, and over time, they beat the active traders2 again and again.

Like the ETF market itself, there has been an explosion in the number of indices3 out there created by the likes of FTSE Russell or MSCI. Knowing the names of some of the most popular indices can help:

  • S&P/TSX 60: Canadian stock market’s largest 60 companies. Canadian ETFs that track this include XIU and ZIU.
  • S&P 500: US Stock market’s largest 500 companies. Canadian ETFs that track this include VFV, ZSP, and XUS.
  • Russell 2000: US Stock market’s next-largest 2000 companies after first dropping the top 10004. A Canadian ETF that uses this index is XSU.
  • MSCI EAFE: Developed country index, excluding USA and Canada. Canadian ETFs that use this index include ZEA and XEF5
  • FTSE Canada Universe Bond Index: A broad set of Canadian corporate and government bonds. Sold as ZAG by BMO and XBB by BlackRock/iShares.

A quick search reveals all kinds of very specific index funds: sector based (e.g. “AI” or “Healthcare”) and country/region based (e.g. “China”, “BRICSA”). I ignore these kinds of funds because betting a sector or a region feels like market timing to me, and market timing is a proven loser in terms of long-term returns.

Words I avoid: “Hedged”

“Hedged” means that the ETF uses some kind of strategy to smooth out the ups and downs in the Canadian dollar’s exchange rate. And on one level, it makes sense: if you buy the S&P500, you’re owning a bunch of US stocks priced in US dollars. If the Canadian dollar gets stronger, then your US holdings are worth less in CAD. If the Canadian dollar gets weaker, then your US holdings are worth more to you in CAD. So some funds try to make this variance go away.

I avoid hedged funds for a few reasons:

  • It adds cost and complexity to the fund, two things I dislike about where I choose to invest.
  • It’s imperfect; while it makes the bumps in the foreign exchange rate get smaller, it would be overly expensive to make them go away completely
  • If you hold an asset long enough and reinvest your dividends, it will be a wash in the end, and the extra cost just creates a drag on your returns. For example, let’s compare XUS versus XSP, which are identical, save for XSP’s use of hedging:
The long term cost of using hedging: XUS vs XSP (hedged)

Words I avoid: “Leveraged” / “Bull” / “Bear”

“Leveraged” means “we’re buying stocks using borrowed money”. And while buying stocks using borrowed money can significantly enhance your returns in an up market, the opposite is true in a down market. No free lunch.

Any ETF that has Bull or Bear in the name is making a bet based on short term returns. Buying scratch tickets at Christmastime is enough gambling for me, and gambling has no place in my retirement strategy.

Summing up

Looking at the name of an ETF is a good starting filter to decide if it’s for you. It’s just one piece of many included in an ETF’s fact sheet.

  1. Tips on how to execute on that decision were the topic of a previous post ↩︎
  2. For example: https://www.spglobal.com/spdji/en/research-insights/spiva/#canada ↩︎
  3. One tip I can offer: if more than one ETF exists offering the index, it’s probably a decent index to consider. Be a bit suspicious if only one company has an ETF that mirrors said index — I’d consider it a bit of a fringe offering, of no interest to me. ↩︎
  4. This is normally seen as a “mid cap” or “small cap” index, meaning “US stocks that aren’t in the S&P 500”. I looked at https://www.marketbeat.com/types-of-stock/russell-2000-stocks/ and the first company I recognized was Duolingo. ↩︎
  5. As an illustration of the insanity regarding the explosion of indices, XEF tracks not MSCI EAFE but MSCI EAFE IMI, which adds a few more smaller companies into the mix. But if you refer to https://www.msci.com/documents/10199/11a56df6-0f09-4477-a168-cce49e1719cd you will see that the long term performance differs by 0.01%. ↩︎