Getting your Fixed Income Fix with BMO ETFs

This article has been sponsored by BMO Canada. All opinions are my own.

Fixed income doesn’t get enough attention on this blog, mostly because I’m still in my accumulation years and invest in 100% equities across all my accounts. But most investors should hold bonds in their portfolio to reduce volatility and so they can rebalance (selling bonds to buy more stocks) whenever stocks fall.

In this post we’re going to take a deep dive into BMO’s line-up of fixed income ETFs. We’ll see that there isn’t a one-size-fits-all approach to investing in fixed income, and that investors can capture yield using a wide array of products and strategies.

DIY investors should be familiar with BMO’s suite of fixed income ETFs. It’s the largest in Canada with more than $23 billion in assets. At the top of the list is BMO’s Aggregate Bond Index ETF (ZAG) with total assets of $5.86 billion.

Robo-advised clients also have BMO fixed income ETFs in their model portfolios:

  • Nest Wealth clients hold BMO Aggregate Bond Index ETF – (ZAG)
  • Wealthsimple clients hold BMO Long Federal Bond Index ETF – (ZFL)
  • Questwealth clients hold BMO High Yield US Corp Bond Hedged to CAD Index ETF – (ZHY)
  • ModernAdvisor clients hold BMO Emerging Markets Bond Hedged to CAD Index ETF – (ZEF)

BMO Fixed Income ETFs

Investors are nervous about holding bonds today. Interest rates are at historic lows, and when rates eventually rise, we’ll see bond prices fall – especially longer duration bonds. We’re also seeing higher inflation, which causes interest rates to go up (and bond values to go down).

Q: Erika, investors are concerned about low bond returns, particularly from long-term government bonds. How should they think about the fixed income side of their portfolio?

A: Investors should think of fixed income as a ballast in their portfolio. It helps reduce overall volatility (chart below). Correlations between US Treasuries and stocks (represented by the MSCI USA index) have been negative over the last two decades. All that to say, when stocks fall, bonds tend to do well.

BMO figure 1

One thought on “Getting your Fixed Income Fix with BMO ETFs

  1. Great post. Folks can certainly do core and then fix some portfolio holes – aka inflation risk. Stocks did not work during stagflation. Not U.S. not Canadian, not International.

    Folks might layer in some commodities as well.

    Dale @ Cut The Crap Investing

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