Q&A: RBC ETFs

Question: My question is in regards to the series of bond ETFs that RBC launched in September 2011. I am speaking about the corporate bond ETFs with specific maturity dates. They trade under the symbols RQA (short term) to the RQH (long term). I would be interested in any comments you would have as to the suitability of holding these ETFs in an RRSP or as part of a non-registered income portfolio. – Joe S.

Gordon Pape answers: I wrote about this suite of bonds shortly after they were launched last year. At the time, I said they could be used to construct a bond ladder — the first ETFs that offered this feature. However, I noted that we had no way to project cash flow and therefore I could not say at the time how useful they would be for income investors.

One year later, we know a little more. First, it’s clear these ETFs have not caught on with investors — the largest one has only $28.45 million in assets, the smallest one just $8.21 million. Second, overall performance has been above average. Every fund but one is in the first quartile of its category so far in 2012. Third, cash flow has been quite good.

Initially, the funds were only supposed to make quarterly distributions. However, that switched to monthly at the start of 2012. The amount of the payment will vary — for example the RBC Target 2014 Corporate Bond ETF (TSX: RQB) paid $0.067 per unit for the first two months of this year, then dropped to $0.066 for three months, and is currently paying $0.069 per unit. At that rate, the annual yield would be 4.2% based on the market price of $19.69.

My conclusion is that these ETFs provide an easy way to build a laddered bond portfolio that will generate decent cash flow. The MERs are reasonable and if you buy through a discount broker the sales commissions will be low.

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