Opinions
Mike Philbrick
BMO REAL RETURN BOND INDEX ETF
ZRR-T
COMMENT
Dec 06, 2024
Stock price when the opinion was issued
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If you want inflation protection and bonds. They take the CPI and add a spread. It's about inflation expectations. So if they're robust, they're already reflected in the bond price, then you won't see a big pop in the ETF price. Conversely, if they're underpriced, this ETF can perform. Real return bonds have struggled. Own this in a registered account to avoid tax headaches. You should own real return as well as nominal bonds. But don't go all-in in real return bonds.
It's been a tricky year, but part of your bond portfolio that you really want in there. Longer term, these ones give you a coupon rate along with whatever the CPI is. Accounting is a bit funny, so owning them through an ETF and in a registered plan makes sense. Tax calculation tricky outside a registered plan.
Adds protection during inflationary shocks. Nice complement to your bond portfolio, just an allocated piece of it.
Designed to protect from the ravages of inflation. The real return rate itself is highly variable, now they're under 2%, and they were negative a couple of years ago. Long duration, low coupon, nominal yields, risky. A messy security. Worst performers in the bond market last 3 years, by far.
Real return bonds are challenging to the average investor. The distribution of these is low, plus the inflation rate. This asset class sometime anticipates inflation and prices it in, and if not, there's big downside risk. Take advantage if it underestimates inflation. Is also serious interest rate risk.
Real return bonds are often misunderstood. They offer inflation protection, because they offer both an inflation and interest rate component (tracking both). So, if inflation ticks higher, these go higher. However, they underperform during low inflation. There's much talk of Trump's tariffs being inflationary, but part of his plank is deflationary. If you predict the former, you want some of ZRR.