Q&A: Investing U.S. Dollars

A reader looks for ways to put money into U.S. fixed-income securities

 

Q – I have a considerable amount of U.S. dollars in my RRSP that I wish to invest in U.S. dollar fixed income holdings. Do you have any recommendations? – Bob R.

A – You might want to look at the iShares Core U.S. Aggregate Bond ETF, which trades under the symbol AGG. The fund tracks the performance of the total U.S. investment grade bond market and is has about $23 billion in net assets (figures in U.S. dollars). Monthly distributions vary but lately have been about $0.18 per unit. The fund showed a total return of 5.07% over the 12 months to Feb. 28.

That said, the fund has been on a downward trend recently due to concerns about coming rate hikes in the States. Now that the Federal Reserve Board has indicated it could start raising rates as early as June, that pattern could continue. Don’t be surprised, therefore, if the market price declines in the coming weeks. However, a further rise in the value of the U.S. dollar against the loonie could more than offset that.

If you want to reduce interest rate risk, look at the iShares Core Short-Term USD Bond ETF (NYSE: ISTB). It invests in a diversified portfolio of government, corporate, securitized, and emerging markets bonds with maturities of one to five years. Your returns will be much lower – just 1.15% in the year to Feb. 28. But the risk is much less as well. – G.P.

 

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