Target hit in the center by arrow

With investors pricing in rate cuts this year, Guardian Capital has introduced a suite of target-maturity bond funds, a niche category that proved popular in 2023 among investors looking to lock in bond yields with more certain income.

The GuardBond suite of funds released last week consists of five actively managed Canadian investment-grade corporate bond funds. The funds have defined dates when the bonds mature and the net asset value is returned to investors — in 2024, 2025, 2026 and 2027 — and there’s also a one-to-three-year laddered fund of funds.

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Traditional bond ETFs have no termination date and their duration remains stable. As with directly held bonds, durations for target-date ETFs decrease as they approach maturity.

“Because the bonds are not being sold, the income they’re paying today is basically the income those bonds in the portfolio will continue to pay until they mature,” said Mark Noble, senior vice-president of retail strategy with Guardian Capital.

Holding bonds to maturity removes the risk of daily mark to market losses, Noble said, so default becomes the main risk — an extreme rarity in Canadian investment grade.

RBC has been offering target-maturity bond ETFs since 2011, but the funds doubled in size last year to $2.4 billion, leading National Bank Financial to call target-maturity funds the “rising stars” of the ETF world in 2023. RBC expanded its lineup last year to include target-date government bond ETFs in addition to its corporate bond funds.

Unlike RBC’s index funds, Guardian has taken an active approach to its Canadian investment-grade holdings.

Noble pitched the Guardian funds as a potential alternative to popular GIC ladders, offering extra yield without adding much risk. And, while conventional GICs can’t be cashed in before maturity, investors in target-date funds can sell early. The risk, however, is that the ETF could be trading below the value that will be payable at maturity.

The funds could also be a solution for advisors who run their own bond ladders, Noble said, which can be difficult to manage.

“Canadian corporate bonds trade over the counter, which means that they’re opaque in terms of their pricing,” he said. “Sometimes, they can be difficult to sell, and it’s also time-consuming and costly.”

ETF units of the five funds are trading on Cboe Canada, with management fees of 0.20%. The management fees  for the mutual funds are 0.20% for Series F and 0.70% for Series A.

CI launches new factor ETFs

CI Global Asset Management launched new U.S. equity ETFs Tuesday that track the momentum and value factors: the CI U.S. Enhanced Momentum Index ETF (TSX: CMOM) and the CI U.S. Enhanced Value Index ETF (TSX: CVLU).

The ETFs, which also come in unhedged versions, track new indexes from New York–based VettaFi LLC. Both funds have a 0.30% management fee and a medium risk rating.

Exiting the metaverse

Evolve Funds Group Inc. is terminating the Evolve Metaverse ETF (TSX: MESH).

Evolve and Horizons ETFs Management (Canada) Inc. launched competing metaverse ETFs in November 2021, not long after Facebook changed its name to Meta Platforms Inc.

The launch also coincided with the peak of the pandemic bull market. The actively managed MESH returned -48.6% in 2022 before rebounding sharply last year, posting a 56.2% gain for 2023. The passive Horizons Global Metaverse Index ETF (MTAV) dropped 36.7% in 2022 before posting a 53.4% gain last year.

Evolve’s fund, which has $6.2 million in assets under management (AUM), will stop taking new subscriptions on Feb. 22 and delist a month later.

Horizons’ metaverse ETF has AUM of just less than $5 million, while metaverse ETFs from CI Global Asset Management and Fidelity Investments Canada ULC, launched in May 2022, have $1.1 million and $6.4 million, respectively.