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BMO Real Return Bond Index ETF - ZRR

ETF Overview

The fund has been designed to replicate, to the extent possible, the performance of the FTSE TMX Canada Real Return Non-Agency Bond Index, net of expenses.

The Fund invests in a semi-annual pay real return bonds denominated in Canadian dollars with a term to maturity greater than one year.

Securities held in the Index are generally issued or guaranteed by the Government of Canada.

Additional Index Information

The FTSE TMX Canada Real Return Non-Agency Bond Index consists of semi-annual pay real return bonds denominated in Canadian dollars, with an effective term to maturity greater than one year.

The Index consists of bonds issued by the Government of Canada (excluding both agency/crown corporations and supranational entities).

Each Constituent Security in the index is weighted by its relative market capitalization and is rebalanced on a daily basis.

Key ETF Data

Fundamentals
Category (main) Canadian Fixed Income - Real Return Bonds
Category (other)Real Return Bonds
Underlying Index FTSE TMX Canada Real Return Non-Agency Bond Index
ETF Structure Passive type. Endeavours to return the Index return before fees/costs
Asset Class Fixed Income - Real Return
Region Canada
Issuer BMO
ETF Home Page Available here
Fund Facts
Inception Date May 19, 2010
Total Holdings 7
Distribution Frequency Monthly
Leverage None
Significant Currency Exposure No
Currency Hedging Not applicable
Fees
Management Fee 0.25%
Management Expense Ratio (MER) 0.28%
Trading Information
Ticker ZRR
Exchange TSX (Toronto Stock Exchange)
Currency CAD
Eligibility
Eligibility * RRSP, RRIF, RESP, TFSA, DPSP, RDSP
DRIP available ** Yes
PACC Plan available ** Unknown
SWP available ** Unknown

* Always check eligibility with your plan operator as plans and accounts can differ

** Not all brokers can facilitate these plans. Check with your broker.

Current Price, Fund Performance, Yield, NAV, Charts etc

To view the TSX or Morningstar fund page for this ETF click on the Fund Data menu tab or below:

ETF at TMX ETF at Morningstar

ETF Analysis

Bonds/fixed income funds should be an important component in most investment portfolios. The general rule of thumb is that you should have the percentage equivalent in bonds as per your age. So if you are 30, your portfolio should comprise 30% bonds/fixed income funds.

However the bond markets are in near unprecedented territory. Years of central bank stimulus packages and ultra-low interest rates since 2008's Financial crisis have created a massive bubble.

Many analysts including Peter Boockvar, managing director and chief market analyst at The Lindsey Group, agree. He stated in July 2016 that the bond market is in an ‘epic bubble of colossal proportions’.

Until the buddle bursts, we cannot recommend buying bonds/fixed income funds.

If you absolutely have to buy bonds/fixed income funds then ensure you always check the Yield To Maturity (YTM), also known as the Weighted Average Yield To Maturity.

The YTM is much more important than the bond's current yield (also called the current distribution yield).

The YTM (unlike current yield) considers not only the coupon income, but any capital gain or loss that an investor will realize by holding the bonds to maturity. It also considers reinvestment of the coupons.

Unfortunately the frothy bond market has meant many fixed income ETFs have had to purchase many bonds at a premium. An ultra-low rate environment and purchasing bonds at a premium makes for a particularly terrible climate for income seekers, and new fixed income investors.

Protect yourself by understanding YTM and checking the YTM of any fixed income security you are considering purchasing. Also understand quality ratings, duration and maturities.

Be particularly aware of fund fees. What is the fund's MER ()? An MER of 0.40% may not sound like much but fixed income funds are supposed to be less risky than equities (bond market bubbles such as the current one excepted) so their returns are typically considerably less. Consequently an MER of 0.40% may actually be a significant portion of any investment return from a bond/fixed income fund. Bond ETFs with sub 0.20% MERs are available.

ETF Analysis

Unlike conventional bonds, the principal and interest payments of real return bonds rise with inflation, preserving your purchasing power. Thus RRBs provide inflation protection.

A downside of RRBs is that yields tend to be lower than non-inflation protected bonds of a similar maturity. Most RRBs are issued with long maturities. RRBs tend to have more interest-rate sensitivity due to their low yields - their prices rising more when interest rates fall, and falling more when interest rates rise.

RRB yields are particularly low at present, forcing new buyers to purchase at a premium. If RRB yields correct (back to their norm/mean) at some point in the future, these buyers may experience capital losses on their RRBs.