2-Minute Guide to Fixed Income Investing

Transcription

1 2-Minute Guide to Fixed Income Investing

2

3 There s now more money invested in fixed income securities than in equity securities. And that market hasn t just grown it s grown more diverse, which means new opportunities for you.

4 Why fixed income? Any Marketplace Worth Over $1.1 trillion Is Obviously Important That s a lot of government and corporate bonds. In fact, today s fixed income market is just as large as the Canadian equity market. And yet, many investors don t realize how varied the fixed income world has become. In 1994, trading in Government of Canada bonds represented 90% of all secondary trading in the Canadian bond market, but by 2010, their share had fallen to 78%. Over that same period, secondary trading in real return bonds increased by 174%, and secondary trading in Canadian corporate bonds increased by 366%. 1 Markets change. And so too can the strategies for investing in them. 1. Source: Investment Industry Association of Canada, as of December

5 A Potential Antidote to Volatility Index Returns: (Base Value: 1000) Total Return /00 1/01 1/02 1/03 1/04 1/05 1/06 1/07 1/08 1/09 1/10 1/11 DEX Universe Bond Index MSCI EAFE Index S&P 500 Index S&P /TSX Composite Index MSCI Emerging Markets Index Source: PC-Bond, a business unit of TSX Inc., Bloomberg L.P. and BlackRock Asset Management Canada Limited ( BlackRock Canada ). Data as of 7/29/11. Many investors still approach the fixed income marketplace with a goal of capital preservation and income. But fixed income investments may also be utilized as an effective tool for managing overall portfolio volatility. The differences in fixed income market performance relative to equities create that opportunity. Generally speaking, holding a greater percentage of fixed income equates to reducing the overall volatility of a portfolio. So adding fixed income may help you strike the right balance between risk and return. 5

6 Managing risk and return Why ishares Exchange Traded Funds (ETFs) for Fixed Income? Liquidity, Easy to Get into and Out of When you want to purchase a bond, you re often at the mercy of whatever s available at the bond desk on any given day. ishares fixed income ETFs are highly liquid, allowing you to buy in and get out with ease, whenever you want. Diversification, for Stable Returns You often find fixed income funds holding a few bonds, offering little protection against fluctuating returns. ishares fixed income ETFs, however, hold hundreds of bonds offering you a good deal of protection against volatility and a steady stream of income for your clients. Dependability of a Laddering Methodology, Built Right In ishares fixed income ETFs have advanced the concept of bond laddering to a whole new level. Unlike a bond ladder with five or ten bonds, ishares fixed income ETFs hold hundreds of bonds that mature and are replaced in an infinite cycle, ensuring stability and mitigating risk. Best of all, it happens continuously and automatically. Benefit from the Buying Power of BlackRock BlackRock Canada and its affiliates ( BlackRock ) has over US$1.3 trillion in fixed income assets under management, which gives it unrivalled purchasing power and cost savings, resulting in ishares ETFs that offer a wider variety of holdings at a lower cost. 6

7 Laddering: It s Part of Our DNA ishares DEX Short Term Bond Index Fund (XSB) Portfolio Breakdown 4 to 5 years Maturity 1 to 2 years 2 to 3 years Yield: 2.01% Duration: 2.5 years Number of Bonds: 66 Weight: 25.0% 3 to 4 years Yield: 2.34% Duration: 3.4 years Number of Bonds: 54 Weight: 22.1% Yield: 2.71% Duration: 4.3 years Number of Bonds: 64 Weight: 19.9% Yield: 1.65% Duration: 1.5 years Number of Bonds: 65 Weight: 32.6% Source: PC-Bond, a business unit of TSX Inc and BlackRock Canada, as of 6/30/11. ishares fixed income ETFs have the methodology of bond laddering built right into every fund. Access professional bond selection and management through BlackRock Canada. Most ishares fixed income ETFs provide income on a monthly basis. 7

8 A not-so-simple asset class The Returns of Fixed Income Aren t Fixed Over the past ten years, the returns of different fixed income investments have varied substantially. One year, short term bonds made an investor look like a genius. The next, real return bonds did. So instead of embracing a single solution that may (or may not) be this year s winner, diversifying within fixed income may create more consistent riskadjusted returns over the long term. And unlike investors of the not-too-distant past, you have an option that makes it simple to access a wide range of asset classes within the fixed income market: ishares ETFs. 8

9 Annual Index Total Returns by Asset Class 9.4% 15.3% 13.3% 17.5% 15.2% 5.9% 4.4% 9.0% 18.9% 12.5% 9.3% 11.1% 11.2% 10.3% 13.8% 4.4% 4.1% 8.6% 16.3% 11.4% 8.1% 8.8% 9.1% 10.2% 6.6% 4.1% 3.7% 6.4% 14.5% 11.1% 7.7% 8.7% 8.5% 7.3% 6.5% 4.1% 3.4% 2.7% 5.5% 7.3% 6.1% 8.6% 6.7% 7.1% 6.0% 4.0% 2.5% 0.4% 5.4% 6.7% 0.5% 7.0% 6.0% 7.1% 5.1% 3.9% 1.8% 0.2% 4.5% 6.5% n/a 6.3% 5.1% 5.1% 2.4% 2.9% 1.6% 0.9% 1.6% 3.6% DEX All Corporate Bond Index DEX Real Return Bond Index DEX All Government Bond Index DEX HYBrid Bond Index DEX Universe Bond Index DEX Long Term Bond Index DEX Short Term Bond Index Source: PC-Bond, a business unit of TSX Inc., Bloomberg L.P. and BlackRock Canada. Index returns are for illustrative purposes only and do not represent actual ishares Fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged, and one cannot invest directly in an index. Past performance does not guarantee future results. Recent history shows that the performance of different fixed income sectors varies from year to year, which may create a case for diversification within your fixed income portfolio. 9

10 Many bonds, one trade An Innovative Approach to Fixed Income Investing There s a remarkable range of fixed income ishares ETFs now available to investors and the options continue to grow. Fixed income ishares ETFs are diversified like traditional bond mutual funds, but are traded on an exchange similar to individual stocks. ishares ETFs tend to have low management fees and historically have had low capital gains distributions. 2 Costs and taxes can have a significant impact on portfolio performance over time. The new world of fixed income investing is rapidly evolving. Talk to your advisor about how to harness it with ishares ETFs. 2. Past distributions are not necessarily indicative of future distributions. 10

11 Top 20 Issuers ishares DEX All Corporate Bond Index Fund (XCB) BANK OF NOVA SCOTIA ROYAL BANK OF CANADA GE CAPITAL CANADA FUNDING COMPANY TORONTO DOMINION BANK CANADIAN IMPERIAL BANK OF COMMERCE HYDRO ONE INC GREATER TORONTO AIRPORTS AUTHORITY BANK OF MONTREAL BELL CANADA ROGERS COMMUNICATIONS INC TRANSCANADA PIPELINES LIMITED TELUS CORPORATION SHAW COMMUNICATIONS INC MANULIFE FINANCIAL CORPORATION WELLS FARGO FINANCIAL CANADA CORPORATION 407 INTERNATIONAL INC NATIONAL BANK OF CANADA ENBRIDGE INC LOBLAW CO LTD SUN LIFE FINANCIAL INC Source: PC-Bond, a business unit of TSX Inc. and BlackRock Canada, as of 6/30/11. The ishares DEX All Corporate Bond Index Fund reflects a range of underlying issuances. Similar diversification is delivered by many of the fixed income ishares ETFs. 11

12 For more information visit or call iShares ( ) /11 ishares Funds are managed by BlackRock Asset Management Canada Limited. Commissions, management fees and expenses all may be associated with investing in ishares Funds. Please read the relevant prospectus before investing. The funds are not guaranteed, their values change frequently and past performance may not be repeated. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. DEX Universe Bond Index, DEX All Corporate Bond Index, DEX All Government Bond Index, DEX HYBrid Bond Index, DEX Long Term Bond Index, DEX Real Return Bond Index, and DEX Short Term Bond Index are trademarks of TSX Inc. and have been licensed for use for certain purposes to BlackRock Asset Management Canada Limited by PC-Bond, a business unit of TSX Inc. XBB, XCB, XGB, XHB, XLB, XRB and XSB are not sponsored, endorsed, sold or promoted by PC-Bond, TSX Inc., its affiliates or third party data providers and they make no representation, warranty, or condition regarding the advisability of investing in the funds BlackRock Asset Management Canada Limited. All rights reserved. ishares is registered trademark of BlackRock Institutional Trust Company, N.A. Used under license. BlackRock is a registered trademark of BlackRock, Inc. Used with permission. All other trademarks, service marks or registered trademarks are the property of their respective owners /12 BlackRock Asset Management Canada Limited 161 Bay Street, Suite 2500 P.O. Box 614, Toronto, Ontario, M5J 2S1