Q&A With Gordon Pape: Should I Put It All In One Canadian ETF?

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A reader wants to know: Is it a good idea to invest my entire bond allocation in a Canadian ETF?

Q – My portfolio is now about 45 per cent cash after taking some profits. I am 75; my spouse is 65.
 I would like to have 25 per cent or so in fixed income. Would you see any problem with having the entire fixed income allocation in XBB, or would you suggest diversifying among a number of bond ETFs? – Larry W. Kamloops, BC

A – XBB is the trading symbol for the iShares Core Canadian Universe Bond ETF. It covers the entire domestic bond market, including corporate and government issues and bonds of varying maturities.

If you only want exposure to Canada, it’s a good fund to hold and it is on our Recommended List.
But Canada only represents a fraction of the world bond market. You may want to diversify by adding ETFs that give you some exposure to fixed income securities from the U.S. and overseas.

Here are three you might consider.

iShares Core Total USD Bond Market ETF (NDQ: IUSB). This invests in a portfolio of U.S. dollar-denominated bonds that can be both investment grade and high yield. The expense ratio is only 0.06 per cent.

iShares Core International Aggregate Bond ETF (BATS: IAGG). The mandate here is to invest in a portfolio of investment-grade bonds that are not denominated in U.S. dollars. The main holdings are issues from Japan, France, Germany, Italy, and the U.K. The expense ratio is 0.09 per cent.
Finally, consider the iShares J.P. Morgan Emerging Markets Bond ETF (NDQ: EEM). As the name suggests, it invests in debt from Emerging Markets countries but only in bonds denominated in U.S. dollars. It has been on a strong run this year. The expense ratio is 0.40 per cent.

Any mix of these and XBB would provide a lot more diversity and profit potential for your portfolio.

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