Rising rates crush bonds – that’s why the benchmark FTSE Canada Universe Bond Index lost an average annual 1.2 per cent over the three years to Aug. 31 on a total return basis of bond price changes and interest payments.
Aggregate bond ETFs mirror the benchmark FTSE Canada Universe Bond Index or competitors with a similar structure that combines short-, medium- and long-term bonds, plus government and corporate bonds. You own the entire bond market with these ETFs, which means you don’t have to sweat the details on what segments of the bond market are working better than others at the moment.
The aggregate bond fund covers you on all fronts - you have exposure to bonds issued by the federal government and its agencies, provincial governments, big banks and other big companies. The cost of owning one of these ETFs is a bargain – management expense ratios tend to be in the 0.1 per cent range.