ISHARES DEX SHORT-TERM BOND INDEX FUND $28.55 (Toronto symbol XSB; buy or sell through brokers) mirrors the performance of the DEX Short- Term Bond Index.
This index consists of a wide range of investmentgrade federal, provincial, municipal and corporate bonds with between one- and five-year terms to maturity. The fund holds 400 bonds with an average term to maturity of 2.86 years. The bonds in the index are 61.0% government and 39.0% corporate. The fund’s MER is 0.27%.
iShares DEX Short-Term Bond Index Fund yields 2.5%. However, this high yield is due to the fact that some of the fund’s bonds pay above-market interest rates. As a result, they trade above their face value. When these bonds mature, holders will only get the bonds’ face value, which means the portfolio will incur predictable capital losses. These losses will offset some of the appeal of the above-market yields.
The key figure when looking at the long-term return of this fund is yield-to-maturity. This yield takes into account the series of capital losses the fund will experience as its above-market-rate bonds mature. iShares DEX Short-Term Bond Index Fund’s yield-to-maturity is around 1.57%—less than the 2.5% yield but still higher than the 1.00% you’d earn by investing in, say, a one-year T-bill.
If you want to invest in a bond fund, iShares DEX Short-Term Bond Index Fund is a buy.
