RBC has filed preliminary prospectus (available on SEDAR here) to introduce eight new ETFs. All of RBC’s ETFs will be Corporate Bond ETFs with target dates ranging from 2013 to 2020. For instance, the RBC Target 2020 Corporate Bond ETF will replicate the performance of a portfolio of Canadian dollar-denominated investment grade corporate bonds that effectively mature in 2020. The RBC ETFs will employ a sampling methodology to replicate the DEX Target Date Maturity Corporate Bond Indexes provided by PC-Bond Analytics, a provider of Canadian fixed income indices.

The DEX Target Date Corporate Bond Indices are capitalization weighted and the constituent securities are rebalanced twice annually. Since the bonds will mature at a future date, the RBC Corporate Bond ETFs have a termination date. As bonds mature during the year leading up to the termination date, the proceeds will be reinvested in cash and cash-equivalents and when the ETF terminates, it will make a cash distribution to unit holders equivalent to the ETF’s Net Asset Value.

The management fees and ticker symbols of the RBC Corporate Bond ETFs are not known at this point. Personally, I expect to remain a spectator on these new ETFs since I have no allocation to corporate bonds and don’t plan to make any in the near future. Interestingly, despite the number of new ETFs flooding the market these days, the last time I added a new ETF to our portfolios was way back in 2007 when Vanguard introduced what was then called the Europe-Pacific ETF (VEA) to replace our holdings in the iShares EAFE Index Fund (EFA). While new products and more competition are generally good for the industry, the avalanche of new ETFs hitting the market is getting to be a bit ridiculous.

This article has 7 comments

  1. I don’t claim to be an expert at assessing market conditions, but the last thing I’d want to do with my money right now is lend it to companies who see the current low interest rates as an opportunity to raise cash cheaply.

  2. Your last sentence said it all CC – “While new products and more competition are generally good for the industry, the avalanche of new ETFs hitting the market is getting to be a bit ridiculous.”

    My head is on a swivel at even attempting to keep up and understand all the new ETF releases. ETFs are the new mutual fund.

  3. @Michael James. I agree completely! I think the reason why the market is getting flooded with ETFs is because the holders of these securities (eg. brokers / dealers / institutionals) want a quick way to unload their crappy investments in bulk without shocking the market. So, they lump them into an ETF (since they’ve become the retail investment vehicle of choice “du jour”) and foist them upon an unsuspecting public – and then promoting them to widows and orphans as the safest choice in the market today.

    Am I cynical? Yes, I am! It’s happened time and again with US mortgage bonds, asset backed commercial paper, income trusts (except that time it was the government that blew it up), dot-gone stocks, yada yada. The list goes on.

  4. @Michael: I don’t have a view on whether interest rates are low at present. The market seems to be happy to lend at low rates, which means the expectation is for interest rates to remain muted. I don’t have a compelling reason to think the market is making an incorrect estimate.

    Having said that, I don’t own corporate bonds except as part of a broad bond index.

    @My Own Advisor: I couldn’t agree more. I mean, who exactly needs 200 ETFs?

    @Phil S: While I agree that a number of questionable ETFs are getting launched (a recent cloud computing ETF comes to mind), in this case, investment-grade corporate bonds are not a particularly crappy investment.

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  6. @CC: It will be interesting to see what RBC’s management fees are going to be. Some of the BMO ETFs peak my interest somewhat but to date I only own one ETF for the long haul, and I have another short term Horizons ETF that I anticipate to offload sooner rather than later if my interpretation of the market proves to be correct.

    @CC & My Own Advisor: I totally agree that the number of ETFs available is becoming overwhelming to investors, especially for those who are just beginning to wrap their heads around them. I also find that when I finally begin to gravitate one that interests me, it tends to have fairly high management fees.

    Nice post

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