The Unthinkable Happens for Bond Investors: Double-Digit Declines

Bond ETFs have been available in the Canadian market since 2000 and the results since then have been quite good throughout this period.

The annualized total return of the iShares Core Canadian Universe Bond Index ETF (XBB-T) since its inception in November 2000 is 4.5%. Not bad for an asset you hold for stability in tough times more than anything else. Moreover, it is double the average inflation rate of 2.1% from 2000 to 2022.

Today, bond ETFs are crushed. XBB’s year-to-date total return – that is, the change in unit price plus bond interest – was negative 10.3% for the year to April 22. The first quarter loss was 7% and the 12-month decline was 4.6%.

Bonds and the exchange-traded funds that hold them are going from bad to worse. We are seeing something that was once unthinkable: double-digit bond fund losses.

Bonds are crushed by the deteriorating outlook for higher interest rates. The March inflation rate reached 6.7%, compared to 5.7% in February and 5.1% in January. This trend suggests harder and faster rate hikes from the Bank of Canada, and more bond adversity.

There’s a strong argument to be made for holding short-term bonds and bond ETFs right now instead of the broader funds that also hold mid-term and long-term bonds. You get more yield from broad-based funds, but much more vulnerability to rising rates. An XBB sibling, the iShares Core Canadian Short Term Bond Index ETF (XSB-T), has seen a year-to-date decline of just 3.8%. The Horizons Ultra-Short Term Investment Grade Bond ETF (HFR-T) lost 1.8% in the first three months of the year.

Floating rate bond ETFs are another idea – the iShares Floating Rate Index ETF (XFR-T) is down just 0.1% year-to-date, while CI Global Asset Management just announced a lower-cost ETF version of the CI Floating Rate Income Fund (CFRT-T), a mutual fund that posted a 1% loss in the first quarter. Floating rate bonds have their interest payments adjusted according to changes in interest rates.

GICs are another option for investors who don’t need the liquidity of bonds or bond ETFs, which can be easily sold at any time. There are cashable GICs, but you give up some return for that convenience. One-year GIC rates from alternative banks hit 3.1% at the end of April. Not a bad place to park cash as bonds flirt with double-digit losses in 2022.

— Rob Carrick, personal finance columnist

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actions to ponder

Home deposit (HD-N, HD-NE) These are tough times for the stock market and there are likely more problems ahead. The companies that shone during the pandemic are now neglected. Home Depot is one of them, and Gordon Pape thinks the home improvement giant is a good buy among the beaten-up junk. The shares, which are available as a covered Canadian certificate of deposit in addition to their New York listing, are down about 28% from recent highs.

Algoma Central Corp. (ALC-T) This stock is approaching oversold territory and approaching strong technical support. Algoma operates a fleet of vessels, carriers and tankers that ply the Great Lakes – St. Lawrence Waterway. With a unanimous buy recommendation among analysts, the stock offers investors total return potential of over 40% (37% potential price return and an attractive dividend yield of 4%). Jennifer Dowty reviews the investment case.

Netflix Inc. (NFLX-Q) and Shopify Inc. (SHOP-T) The American movie streaming pioneer and the Canadian e-commerce giant don’t seem to have much in common. But they are now locked in a similar battle: trying to convince investors that they can still grow at a healthy pace. As David Berman tells us, both companies face a difficult task – and investors will have a lot to consider as they weigh falling share prices in an operating environment that no longer looks as attractive as it did at the height of the day. of the pandemic.

The summary

Bruised Wall Street faces a gauntlet of worries after market plunge

Battered U.S. stocks face a potentially painful period in the weeks ahead as hawkish Federal Reserve policy, rising bond yields, geopolitical uncertainty and corporate earnings season fuel investor unease. Lewis Krauskopf and Saqib Iqbal Ahmed of Reuters examine the challenges facing investors.

See also: Cash transfers pull the rug under the stock markets: the strategists

Why is gold holding up so well when interest rates are steadily rising?

Sometimes the market gives us an interesting mystery. Right now, the mystery is why gold is holding up so well when interest rates are steadily rising. Gold generally moves in the opposite direction to real interest rates, i.e. interest rates after deducting the bite of inflation. When real rates rise, bullion prices fall. There are excellent reasons why this relationship has proven true in the past. But not anymore. How can we explain this? Ian McGugan is doing his best.

Can’t fight crypto FOMO? Here are some ETFs to consider

Although the Canadian crypto ETF space is barely a year old, fund companies have been busy innovators. The vast majority hold cash crypto assets, two use covered call options to increase yield, a few are “green” using carbon offsets, and another invests in multiple ETFs of crypto assets and related stocks . Paul Brent reviews the options.

Tiptoe back in copper market as demand fears grow

Copper prices were under pressure on Monday morning, with the three-month metal on the London Metal Exchange (LME) falling below $10,000 a tonne for the first time in a month. Copper has spent the last few weeks in suspended animation, the price too high for buyers to chase the market, the supply too tight for sellers to risk shorting. The balance of risk appears to be shifting, however, with signs that the funds are starting to take bearish bets on the CME copper contract. Reuters’ Andy Home explains.

Warren Buffett faces new climate change challenge from investors

Investors concerned about climate change have developed an effective playbook to get companies to set more ambitious targets for reducing greenhouse gas emissions by pressuring, shaming and cajoling executives. But those tactics don’t work on Warren Buffett and his Berkshire Hathaway conglomerate, which owns energy companies, a railroad, insurance companies and other businesses that pump huge amounts of carbon dioxide into the atmosphere. . As Buffett argues, critics complain that Berkshire companies are doing less to reduce emissions than similar companies. Reporting by Peter Eavis of The New York Times.

Others (for subscribers)

The most oversold and overbought stocks on the Toronto Stock Exchange

Monday analyst upgrades and downgrades

Monday’s Insider Report: CEO Invests Over $1 Million in This Gold Stock

Ask Globe Investor

Question: I understand that dividends paid by US stocks in a TFSA are taxable because the US does not recognize the Canadian TFSA as a tax-free account. If I sell shares of a US stock inside my TFSA that has accrued a capital gain, am I taxed on the capital gain?

To respond: No. Capital gains are not affected by this rule. The reason there is a 15% withholding tax on US dividends is that Washington does not recognize a TFSA as a retirement account. Dividends paid to RRSPs, RRIFs and LIFs are not taxed.

–Gordon Pope

What’s up in the coming days

Worried that the big Canadian banks will be swept away by the market sell-off? David Berman will look at what could happen next.

Click here to view Globe Investor’s earnings and economic news calendar.

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Compiled by Globe Investor staff

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