ETFs
The Best Bond ETFs to Own Right Now, Brought to You by AI and a Human
The bond market is back on familiar ground as we enter the second half of 2024. In other words, bonds are being hit. Again.
The past few years have been marked by periods of optimism in the bond market, followed by a return to pessimism. For ordinary investors, this means that the prices of their individual bonds and bond funds have generally declined in recent years. The benchmark Canadian government and corporate bond index has fallen an average of 0.1% per year over the past five years, when you factor in changes in bond prices and interest.
I asked ChatGPT what the best bond funds are to invest in right now and got a list of mostly aggregate bond exchange-traded funds that mirror the insane returns of the benchmark index just above, or similar. This is a good answer if you’re looking for a single bond ETF pick to hold for five to ten years or more, and if you’re patient.
If you’re looking for bond ETFs that are doing well right now, take a look at short-term corporate bonds. I maintain a Globeinvestor watchlist of ETFs featured in recent issues of the Globe and Mail ETF Buying Guide and we found that short-term corporate bond funds led the pack over the past year. Some examples from this list and elsewhere:
- ETF iShares Core Canadian Short Term Corporate Bond Index (XSH-T): The 12-month total return to June 30 was 7.3 percent, and the five-year annualized total return was 2.1 percent.
- The iShares 1-5 Year Laddered Corporate Bond Index ETF (CBO-T): The 12-month total return to June 30 was 6.6%, and the five-year annualized total return was 1.7%.
- Invesco 1-5 Year Laddered Investment Grade Corporate Bond Index ETF (PSB-T): It has grown 6.7% over the past 12 months and 2% annualized over the past five years.
- Fidelity Canadian Short Term Corporate Bond ETF (FCSB-NE): A 12-month return of 7.3%; the fund has not been around long enough to have a five-year track record.
Buying a global bond fund now is a good move at a low price, but expect some turbulence until inflation is finally under control and interest rates continue to fall. Corporate bonds would lose momentum if the economy stagnates, especially those with low credit ratings. For now, they are a rare bright spot in the declining bond landscape.