TORONTO - Last week I explained why I believe bond funds will produce much better results in the coming year than we’ve seen recently. Finance Minister Jim Flaherty’s move against income trusts should give bonds an even higher priority in investors’ minds going forward, especially those looking for income.
If you want to go the fund route in adding bonds to your portfolio, or increasing current weightings, here are three that I like. Ask your financial advisor if they meet your needs.
Long-term bond funds (higher risk)
Beutel Goodman Long-Term Bond Fund. This fund meets all my criteria for a potential top-quartile performer for the coming year. It has a very low MER (0.63 per cent), it is run by a top-notch team from a conservative money management company, and it has outperformed its peer group over all time periods. Over the five years to Sept. 30, the fund posted an average annual gain of 10 per cent, almost double the average for the Canadian Bond category. During October, it managed a small advance despite the market correction. The portfolio is a mix of government and corporate issues with all bonds rated A or higher (no junk here). The fund pays quarterly distributions which have recently been running around 6c per unit. The trailing 12-month cash yield to the end of September was a very respectable 5.63 per cent so this would be an excellent choice for a RRIF. The fund is sold on a front-end load basis (maximum 4 per cent) and the minimum initial investment is $10,000. The FundSERV code (industry standard) is BTG871.
Standard bond funds (medium risk)
TD Canadian Bond Index Fund (e units). When it comes to low MERs, you won’t do much better than this among bond mutual funds. The 0.48 per cent expense ratio is 43 basis points less than that of this fund’s regular I units and that translates into more money in your pocket. Over the three years to Sept. 30, the e units generated an average annual return of 5.4 per cent compared to 4.9 per cent for the I units. That makes it worthwhile taking the time to set up the on-line account with TD that is required to buy their e series of funds. The mandate is to track the performance of the Scotia Capital Markets Universe Bond Index and the fund does that very well. This fund pays monthly distributions of about 4c a unit and showed a trailing 12-month cash yield of 4.8 per cent to Sept. 30, so it is well-suited to investors seeking regular cash flow. I highly recommend this fund for do-it-yourselfers who don’t mind creating the special account needed to acquire units. The FundSERV code is TDB909.
Exchange-traded funds
iShares CDN Bond Index Fund. If you want the lowest possible MER, this is the way to go. These iShares units track the performance of the Scotia Capital Universe Bond Index and have an MER of only 0.3 per cent. However, since they trade on the Toronto Stock Exchange (symbol XBB) you will have to pay a commission when buying and selling which could more than offset the MER saving, depending on how long you hold. If you prefer ETFs to mutual funds for your bond investments, this is your best choice.
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