ETF Learning Centre - How Etfs Can Make Bond Laddering Easier - RBC Global Asset Management

How Etfs Can Make Bond Laddering Easier

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Bonds are the backbone of a well-diversified portfolio. They offer a predictable source of income, provide attractive diversification benefits and help preserve capital. But risks will always remain, no matter how diversified your fixed-income portfolio. Laddering bonds can help mitigate some of this remaining risk.



What are bond ladders?

A bond ladder comprises several fixed-income holdings, with successively longer terms to maturity. In a typical bond ladder, each holding would be the same size with maturity dates arriving at regular intervals. As bonds in a laddered portfolio mature, the cash distribution is either used to cover lifestyle needs or reinvested in new bonds at the longest maturity of the ladder at the current market interest rate.

Here’s an example:

Suppose you had $50,000 to invest in bonds. By using the bond ladder approach, you could buy five different bonds each with a face value of $10,000. Each bond would have a different term to maturity, i.e. one year, two years, three years, four years and five years.

In the example on the right, five bonds were bought that mature one year apart. After one year, your original one-year bond matures, and you can reinvest the money into a new five-year bond. This process ensures that your strategy doesn’t have a specified end date, allowing you to use it as long as necessary.

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Laddered bond portfolios can help reduce risk

Laddered bond portfolios can help mitigate interest rate and liquidity risk. Here’s how:

How ETFs can help you access professionally managed laddered bond portfolios

ETFs can play an essential role in an investor’s overall investment strategy. They offer numerous benefits including diversification (providing exposure to various asset classes or geographic regions), transparency (portfolio composition information available daily), liquidity (listed on an exchange) and cost (MERs are generally low).

There are a couple ways to implement the laddered bond strategy with ETFs:


1. ​​​​​​​Create the bond ladder yourself

You can buy multiple bond ETFs, such as RBC Target Maturity Corporate Bond ETFs, separately to create your own ladder and customize your investing experience.

2. Buy a managed ladder bond portfolio

To go this route, choose a product like one of RBC’s Laddered Bond ETFs:

  • RBC 1–5 Year Laddered Corporate Bond ETF (RBO) is a laddered bond ETF that invests in an equal-weighted portfolio of five RBC Target Maturity Corporate Bond ETFs with maturity dates ranging from 1 to 5 years. RBO offers attractive regular monthly income, broad diversification, and reinvests the maturing capital on a continuous basis.

  • RBC 1-5 Year Laddered Canadian Bond ETF (RLB) holds 70% of its portfolio in Canadian investment-grade corporate bonds through RBC Target Maturity Bond ETFs, and 30% directly in Canadian government bonds. The bonds are equally weighted by maturity year, which provides consistent liquidity. The ETF also reinvests the maturing capital on a continuous basis.

  • RBC 6-10 Year Laddered Canadian Corporate Bond ETF (RMBO) is a rules-based actively managed ETF that aims to provide exposure to the performance of a diversified portfolio of investment grade corporate bonds, divided into five segments with staggered maturities from 6 to 10 years that will provide regular income while preserving capital.

Talk to your advisor about how laddered bond ETF portfolios can fit into your investment strategy. To find out more about RBC ETFs visit www.rbcgam.com/etfs or call 1-855-RBC-ETFS (1-855-722-3837).

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RBC Global Asset Management Inc. is Canada's largest fund company by assets under management (IFIC, as of August 31, 2017). Commissions, management fees and expenses all may be associated with investments in exchange-traded funds (ETFs). Please read the prospectus or Fund Facts document before investing. ETFs are not guaranteed, their values change frequently and past performance may not be repeated. ETF units are bought and sold at market price on a stock exchange and brokerage commissions will reduce returns. RBC ETFs do not seek to return any predetermined amount at maturity. Index returns do not represent RBC ETF returns. RBC ETFs are managed by RBC Global Asset Management Inc., an indirect wholly-owned subsidiary of Royal Bank of Canada. The indicated rates of return are the historical total returns for the periods including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, commission charges or income taxes payable by any unitholder that would have reduced returns.

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This information has been provided by RBC Global Asset Management Inc. (RBC GAM) and is for informational purposes only. It is not intended to provide legal, accounting, tax, investment, financial or other advice and such information should not be relied upon for providing such advice. The information contained herein is from sources believed to be reliable, but accuracy cannot be guaranteed. Commissions, management fees and expenses all may be associated with investments in exchange-traded funds (ETF). Please read the prospectus or Fund Facts document before investing. ETFs are not guaranteed, their values change frequently and past performance may not be repeated. ETF units are bought and sold at market price on a stock exchange and brokerage commissions will reduce returns. RBC ETFs do not seek to return any predetermined amount at maturity. Index returns do not represent RBC ETF returns. RBC ETFs are managed by RBC Global Asset Management Inc., an indirect wholly-owned subsidiary of Royal Bank of Canada.

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