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Readers always have questions on a variety of topics, so let’s look at some that have been sent to my inbox.
Q – I would like to get your opinion on two ETFs I have had for years and are down badly. They are CBO and XRB. Thanks for your help. – Joe F.
A – CBO is the trading symbol for the iShares 1-5 Years Laddered Corporate Bond Index ETF. It invests in a portfolio of short-term bonds, with maturities staggered so that about a fifth of the portfolio matures each year.
A fund such as this is normally very low risk. But the last couple of years have been anything but normal in the bond market, with rising interest rates and an inverted yield curve disrupting investors’ calculations.
Still, the losses haven’t been as bad as you imply. It was down 4.6% in 2022 and 1.1% the year before. Prior to that, it was modestly profitable most years and it is ahead about 2% this year. The average annual compound rate of return since the fund was launched in February 2009 was 2.45%, as of July 31.
I think the worst is behind us for this fund. But don’t expect big profits from it. This type of ETF is viewed as a low-risk parking place for money, not a capital gains grower.
As for XRB, this is going to the other end of the bond spectrum. The full name is the iShares Canadian Real Return Bond Index ETF. It invests in long-term inflation indexed bonds (effective duration 13.3 years). This is high-risk territory, and the results show it. The fund lost 14.7% last year and is off 4.4% year to date. Over the past decade, the fund shows an average annual compound rate of return of only 1.5%.
We normally don’t recommend long-term bond funds because of the risk, although a fund like iShares Core Canadian Long Term Bond Index ETF (TSX: XLB) should do well when the interest rate cycle turns back down. A universe bond fund like iShares Core Canadian Universe Bond Index ETF (TSX: XBB) is a good middle-ground choice. – G.P.
Q – Which rail stock – CN or CP – do you recommend now and for future growth 5 to 10 years out? – Ray V.
A – Both are excellent companies, with a strong history of growth. If we focus only on the share price, Canadian National Railway Co. (TSX: CNR) has seen its stock increase by 1,460% since Sept. 1, 2001. CP Rail, now known as Canadian Pacific Kansas City Ltd. (TSX: CP) has done better, with growth of 1,922% in the same period.
CP’s $31 billion acquisition of Kansas City Southern in December 2021 greatly increased the company’s footprint in the Southern U.S. and Mexico. The company operates 20,000 miles of track, providing connectivity to Canada’s Atlantic and Pacific coasts, the Gulf of Mexico, and a port on Mexico’s Pacific Coast. With the integration of the two railroads continuing, it would appear that CPKC has more upside. – G.P.
If you have a money question, send it to gordonpape@hotmail.com and write Fund Library Question in the subject line. Sorry, I can’t guarantee a personal response, but I’ll answer as many questions as possible here.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website. To receive a free copy of the special report “The Tumultuous Twenties,” go to https://bit.ly/bwGP20s.
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Notes and Disclaimer
Content © 2023 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions. Image: iStock.com/anyaberkut
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