iShares 1-5 yr Ladder Corp Bond ETF (CBO-T)

A laddered bond portfolio. He likes it. Each ETF provider’s version has had bad performance over the last few months because short term yields are seen as rising. The risk is if the BOC is more aggressively tightening. You want to wait until after the next announcement when there may be another pull back and then perhaps get in.

This is a short term laddered bond portfolio up to 5 years. The bonds are trading at a premium, generally. Long term you get a decline in the price. The yield to maturity is closer to 2%. The real return is positive even though the valuation goes down over time. Generally it is a very safe instrument.

Short-term corporate bonds, ZCS-T or CBO-T? They both have very similar holdings. This one weights bonds with a traditional laddering strategy, whereas ZCS-T weights the bonds in the portfolio related to the size they have in the market. It is really hard to say which is better, because all bond ETF’s are ladders of a sort.

A Blackrock bond fund for an 81-year-old? He doesn’t know this corporate ETF, but ETF’s are a good idea because they are very low cost. He would recommend going into a government bond ETF, and put it out across the entire curve, 2 to 30 years. Then you could look at another ETF, that would perhaps have some corporate bonds in order to give you a little bit more yield.

The problem with this is, where is the yield coming from? Quite often when you are looking at yields, there are premium priced bonds in there. This one is quoted as paying 4%. What you need to look at is the yield to maturity. This can be found on the website.

Relatively good and safe investment? For conservative investors right now, short-term corporate bonds are the way to play the fixed income market.

Everything he said about iShares 1-5 yr Government Bond ETF (CLF-T) are equally true for this, only you are going further out on the yield curve. Corporate bonds are riskier than government bonds with the added risk of this one’s underlying basket of securities being more volatile. This is a sort of thing that is going to grind down the NAV. It is fine as a cash-park, but if it were him he would literally use cash instead.

He would recommend this as a core holding in the bond portion of a balanced portfolio. He thinks this is the area of the market that people should concentrate their fixed income holding on a 1-5 year term to protect capital . He is a laddered advocate and this is a good quality laddered index and has around 60 bonds in it. He likes it.

If you own, the first thing you should look at is, what you think your yield is. Then look at what it actually is. You do this by going on to their website and looking at the “yield to maturity”. Then make a decision from there. He likes the idea of the laddered corporate bond index, but we know that if they are doing better than the 10 year government rate, there has to be a reason. If so, he would suspect there are some premium bonds that will mature at par.

Quoted as having a 4%+ yield, but the website shows a yield to maturity of about 1%. How come? Even with really good ETF’s like this, you have to ask Why. They are not expanding the risk nor the duration of the bond portfolio, so how do they get those yields? They are paying $105 for a bond that has a higher yield. The trouble is, when those bonds mature, you are only getting $100 for them, so there is a built-in capital loss. It is very important to go to the website and take a look at the yield to maturity and the duration of the portfolio.

Likes the 1-5 year corporate laddered ETF. It is a nice, safe ETF and you will get the kind of returns that he has shown in Past Picks. This is better than cash and is very safe.

iShares 1-5 yr Ladder Corp Bond ETF (CBO-T) or iShares 1-5 yr Government Bond ETF (CLF-T)? He prefers this one because the risk is very low and it is a very well diversified short-term portfolio and will give you extra yield over time over the government one. If safety of capital is paramount, then he would suggest half-and-half.

More short term and corporate exposure. A good fit for a conservative investor especially in a tax sheltered account.

A laddered bond fund can reduce your exposure using shorter durations. The average is about 2.5 years. It reduces your return, but reduces your exposure to rising interest rates. A lot of funds use preferred shares instead of bonds.