Feeling nervous about market volatility? This ETF may be for you
Stock markets have been spooked by the U.S. government shutdown, the threat of new tariffs and rising debt levels.TIMOTHY A. CLARY/AFP/Getty Images
These are nervous times for income investors.
Stock markets experienced their worst losses since April on Oct. 10, spooked by the U.S. government shutdown and President Donald Trump’s threat to impose new tariffs on China. Adding to concerns is rising public and personal debt, which has prompted some economists to predict a full-blown financial crisis.
How can you protect yourself and still earn a decent return? One suggestion is a bond ETF that rates high on the safety scale: the iShares Core Canadian Short Term Corporate Bond Index ETF XSH-T. It invests in short-term investment grade corporate bonds, which normally pay higher interest than government bonds.
The bond market is currently in a state of uncertainty. Many economists expect the Bank of Canada and the U.S. Federal Reserve Board to continue to lower interest rates. That’s generally positive for bond prices but moves by central banks have the greatest impact on short-term rates. Bonds with longer maturities are influenced by other factors, such as inflation expectations, government debt levels, and credit risk.
As a result, long-term bonds have performed poorly this year, despite the expectation of more rate cuts to come. For example, the iShares Core Canadian Long Term Bond Index ETF XLB-T has lost 0.56 per cent since the start of 2025 (total returns). Not a big loss, but with rates dropping investors might expect better.
The short-term bond fund I’m recommending is a different story. Here are the details. Prices are as of the close of trading on Oct. 10 unless otherwise indicated.
iShares Core Canadian Short Term Corporate Bond Index ETF (XSH-T)
Type: Exchange-traded fund
Current price: $19.30
Entry level: Current price
Annual payout: $0.744
Yield: 3.85 per cent
Risk rating: Lower risk
Recommended by: Gordon Pape
Website: www.ishares.ca
The security: This ETF invests in a portfolio of short-term Canadian corporate bonds, rated investment grade (triple-B or better).
Performance: The fund is ahead 4.23 per cent year-to-date on a total return basis. Don’t expect that to continue over the long haul; the 10-year average annual compound rate of return is 2.83 per cent. However, as long as central banks continue easing, this fund should outperform.
Why we like it: The fund is reflecting the current trend of North American central banks, which is to reduce interest rates. As a result, it is generating higher returns than we are seeing from universe bond funds or long-term funds.
Key metrics: The fund was launched in 2011. It has almost $2-billion in assets under management, which suggests a lot of people are using it as a haven. The management fee is a low 0.1 per cent.
Portfolio: The fund has 586 holdings. The top six positions are bonds issued by the Big Six Canadian banks, which gives you an idea of the fund’s credit quality. About 58 per cent of the bonds in the portfolio mature in three years or less. The average duration (a measure of risk) is 2.61 years.
Risks: Low. The high weighting of bank bonds give the fund a solid core.
Distribution policy: Payments are made monthly. Until recently, they had been running at 6 cents per unit, but the September distribution was 6.2 cents.
Who it’s for: This fund is for conservative investors looking for a safe place to shelter some assets while earning a decent return.
How to buy: The units trade on the TSX and can be acquired through any broker.
Action now: Buy.
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
