As people start to randomly deploy their capital in February as they attempt to fill their RSPs, fixed income solutions are likely going to be the one-click target. One of them will be bond ETFs.
I’ve noticed some slick marketing that tends to mask probable future performance. For example, BMO has a short term corporate bond fund (TSX: ZCS) advertises a “portfolio yield” of 4.65%. 4.65% sounds very good in context of the risk-free rate of about 2% you can get elsewhere.
The only problem is that when you click on the Holdings page, the weighted average yield to maturity is 2.97%!
Very roughly, what this means is that investors will earn a cash yield of 4.65% (minus the 0.3% management expense fee), but will experience capital depreciation as the bonds approach maturity.
It is likely that fund marketing will concentrate on the yield figure, and completely mask more important numbers such as yield to maturity and duration. This is another technique used to mislead retail investors into thinking they are investing in a produce that is seemingly better than it actually will be.