# iShares 1-5 Year Laddered Corporate Bond Index Fund (CBO.TO)



## liquidfinance (Jan 28, 2011)

What are the thoughts on this one. I currently don't have much of a fixed income holding and looking to get into this. I feel it may not be the best time to get into bonds although these low interest rates will be around for some time yet. 

I feel this should give the best protection to any rises given the shirt duration. I'm looking to put around 5k into it and hold within a tfsa. 

Thoughts and opinions appreciated as always.


----------



## fatcat (Nov 11, 2009)

ytm on cbo is 2.34% ... on 5K that is $117 a year

you can get 1.80% in an ally.ca tfasa/hisa ... which will pay $90 a year

you are paying $27 a year to avoid _any loss_ of prinicpal and have funds that are basically denominated as cash

i would pay the $27 myself in this environment


----------



## Belguy (May 24, 2010)

Consider some of the BMO bond ETF's are they are among the current top performers:

http://www.theglobeandmail.com/glob...e-bang-left-in-the-bond-party/article4479451/

Canadians are pouring money into bond funds:

http://www.theglobeandmail.com/glob...ans-pour-money-into-bond-etfs/article4478725/


----------



## Belguy (May 24, 2010)

Bonds--How to avoid getting crushed in the vise:

http://www.theglobeandmail.com/glob...should-do-as-bond-prices-fall/article4490526/

Bond returns begin their decline:

http://www.theglobeandmail.com/glob.../bond-market-volatility-looms/article4489949/


----------



## arc (May 19, 2012)

*1-5 Year Laddered Corporate Bond Index Fund (CBO.TO)*

What do you think of CBO as a long term investment?
http://ca.ishares.com/product_info/fund/overview/CBO.htm

Making 4% a year sounds really nice


----------



## CanadianCapitalist (Mar 31, 2009)

4% is the cash yield. The yield-to-maturity is just 2%. Deduct MER and you are looking at earning 1.7% or so on this product.


----------



## 44545 (Feb 14, 2012)

Not much point when a HISA from People's Trust or Canadian Direct Financial pays 1.9% interest.

If you have the contribution room, the above institutions (fully CDIC insured) have TFSA cash accounts that pay 3% and 2.55% interest, respectively.


----------



## PuckiTwo (Oct 26, 2011)

CanadianCapitalist said:


> 4% is the cash yield. The yield-to-maturity is just 2%. Deduct MER and you are looking at earning 1.7% or so on this product.


CC- I just don’t get it. Here’s my rough figuring:

Re CBO - price is around $20.00. Distributions are about $.075 x12 = $.90/ annum. In 2011, the distributions were about 95% income, and 5% return of capital. Even if we only consider the 95% of the $.90 (= $0.85) , isn’t this about 4.25% income in my bank account for every $20.00 invested? And the MER is already taken into account. I don’t see that yield to maturity matters - in my understanding the ETF never matures, so therefore the ytm is not relevant to current yield. Am I missing something important?


----------



## andrewf (Mar 1, 2010)

To illustrate what is going on. The fund is holding bonds that are selling at a premium. Ie, it costs $125 to buy a bond that will return $100 when it matures. Why would this happen? Because the 'coupon rate' (the periodic 'interest payments' the bond pays) is higher than the yield to maturity investors are willing to accept. If a bond is paying a coupon of 4%, and investors are willing to only get 2%, the value of the bond gets bid up past $100, up to (say) $125, or whatever price is required to make the YTM match what investors are willing to pay.

Now, the coupon payments still count as 'income', while the decline in value of the bonds as they approach maturity is a capital loss. That is why the fund distributes so much income. In the long run, expect the value of the fund to decline so long as the distributions are > the YTM.


----------



## PuckiTwo (Oct 26, 2011)

First of all THANKS to EVERYBODY

*AndrewF / CC: *Yes, I think I have a pretty good handle on how bond pricing works...it’s the ETFs that puzzle me. The price of CBO is essentially the same now as it was in May and about 3/4 of a percent below what it was a year ago. The NAV is about equal to the market price. So if I had bought it last year and sold it now, I would have banked my 4.48% distribution, and would have suffered less than 1% reduction in my capital, wouldn’t I? 

What am I missing? Is the disparity because the fund owns bonds which have been increasing in value while they have been held? And if so, why should I (as an ETF investor) be concerned about the low YTM if the underlying asset values are increasing? At least not for now, maybe in the future.

*CJOttawa *: Yes, I’ve know and use Canadian Western Financial accounts...they are great.


----------



## andrewf (Mar 1, 2010)

Yields have been falling.


----------



## GoldStone (Mar 6, 2011)

andrewf said:


> Yields have been falling.


Or, to put it another way, bond prices have been rising over the last year. CBO unit price held up as a result. You can't count on this forever.


----------



## james4beach (Nov 15, 2012)

PuckiTwo said:


> I don’t see that yield to maturity matters - in my understanding the ETF never matures, so therefore the ytm is not relevant to current yield. Am I missing something important?


My analysis would echo what canadiancapitalist posted, that is, approx 1.7% yield (ytm - mer)

Whenever you're talking about a long term investment, I think yield to maturity is the correct figure to use. Another idea is to use the yield-to-maturity when your time horizon is close to the portfolio's maturity (3 years for CBO).

For perspective: we're trying to figure out what to expect for an investment return. If you ask me what I would expect in one month, then it's the same distribution as last month and little change to the unit price. If you ask what to expect 6 months out, then it's similar to the last few months' distributions, but the unit price is less certain.


----------



## PuckiTwo (Oct 26, 2011)

james4beach said:


> My analysis would echo what canadiancapitalist posted, that is, approx 1.7% yield (ytm - mer). Whenever *you're talking about a long term investment,* I think yield to maturity is the correct figure to use.


james4beach, thks for yr comment. 
Just want to say that I do not necessarily view bond funds anymore as “long-term investment”, the market conditions force you to abandon the buy-hold-forever-and-forget-approach. Nowadays, investors have to be very flexible. 
You can’t rely on past returns and for investors who are buying *now*, bond funds may not be so advantageous. Our situation is a bit different, we are holding a number of ishares etfs which for the last 12 months still put between 4.03 and 3.00% in our pockets (MER deducted). When ytm as predicted is going down we can cash them, put the cash in HISA, or continue to watch the total return and as long as it is competitive, let them sit to preserve capital


----------



## arc (May 19, 2012)

What do you think of a covered call strategy on ZEB?


----------



## HaroldCrump (Jun 10, 2009)

arc said:


> What do you think of a covered call strategy on ZEB?


That is what ZWB is, no?


----------



## arc (May 19, 2012)

HaroldCrump said:


> That is what ZWB is, no?


no, ZWB writes very short term CC and ZWB underperforms ZEB. You can directly write calls on ZEB


----------



## HaroldCrump (Jun 10, 2009)

arc said:


> no, ZWB writes very short term CC and ZWB underperforms ZEB.


ZWB does covered calls directly on ZEB as well, in addition to the various underlying banks.



> You can directly write calls on ZEB


Yes, you _can_, but look at the volume and OI on ZEB options - it's a graveyard.
There is no money to be made there.
I would guess the only folks selling and buying these calls are the managers of the two ETFs.


----------

