Exchange-traded funds focused on Canadian bonds are a core part of most portfolios. Investors can use Morningstar’s Medalist Ratings to help identify Canadian bond ETFs that are seen as having the best chance of outperforming the bond market over the long term.
What Are Canadian Fixed Income Funds?
Funds in the Canadian fixed income category must invest at least 90% of their fixed income holdings in Canadian dollars with an average duration greater than 3.5 years and less than nine years, according to the Canadian Investment Funds Standards Committee. In addition, these funds must invest primarily in investment-grade fixed-income securities, such that the average credit quality of the portfolio as a whole is investment grade (BBB or equivalent rating or higher) and not more than 40% of the portfolio’s holdings are invested in high-yield fixed-income securities.
The 4 Best Canadian Fixed Income ETFs to Buy in 2026
We screened for funds with a
- BMO Aggregate Bond Index ETF ZAG
- Mackenzie Canadian Strategic Fixed Income ETF MKB
- Vanguard Canadian Aggregate Bond Index ETF VAB
- iShares Core Canadian Universe Bond Index ETF XBB
Morningstar expects these funds to outperform their peers over a full market cycle. But while all the funds on our list fall into the same category, they may practice different strategies and behave differently. Investors need to do some homework to understand exactly what a particular fund invests in before buying.
Here’s a quick look at the best Canadian fixed-income ETFs. Be sure to review a fund’s complete report for more details.
BMO Aggregate Bond Index ETF
- : C$13.1 billionFund Size
- Index Fund: Yes
- MER: 0.09
- : GoldMorningstar Medalist Rating
Over the past year, the BMO fund rose 3.55%, while the average fund in its category rose 3.51%. The fund, launched in January 2010, has climbed 4.15% over the past three years and 0.47% over the past five.
BMO Aggregate Bond Index ETF offers a sensible approach to the broad investment-grade Canadian bond market at a low fee.
The fund tracks the FTSE Canada Universe Bond Index, which sweeps in Canadian-dollar-denominated investment-grade bonds. Eligible issues must have at least one year remaining until maturity and a minimum issuance size of CAD 100 million. The index excludes floating-rate notes, mortgage-backed securities, and convertible bonds, except for contingent capital securities that are triggered by a nonviability event.
Market-cap weighting parks a majority of the fund’s assets with the largest issuers: the Canadian federal and provincial governments. The fund has historically invested more than 70% of its assets here, which includes 25%-30% in Treasuries, 35% in provincial and municipal bonds, and the remainder in agency debt. Provincial bonds are often riskier than Canadian Treasury bills and are not tax-exempt. Thus, these securities offer higher yields than otherwise-equivalent federal bonds. Nonetheless, they still enjoy the full taxation and fiscal power of the Canadian provincial governments and are generally safer than corporate bonds.
By comparison, the average category peer only invests around half of its assets in government and government-related bonds. The fund’s relative overweight in government bonds and underweight in corporate bonds translated into a muted credit risk profile. That helped it fare better during credit shocks, such as the 2020 coronavirus-driven drawdown or the recent market volatility earlier in 2025. However, the lack of credit risk will be a drag on its performance when credit spreads compress.
A heavy allocation to government bonds may also leave this fund more sensitive to rising government bond yields or interest rate increases. Its duration doesn’t deviate too far from the category average, so underperformance has been minimal when yields rise. Overall, the fund’s low fee and superior downside protection should preserve its performance advantage over category peers in the long run.
Lan Anh Tran, analyst
Read Morningstar’s full report on the BMO Aggregate Bond Index ETF.
Mackenzie Canadian Strategic Fixed Income ETF
- : C$902.6 millionFund Size
- Index Fund: No
- MER: 0.45
- : BronzeMorningstar Medalist Rating
Over the past year, the Mackenzie fund rose 3.80%, while the average fund in its category rose 3.51%. The fund, launched in April 2016, has climbed 4.35% over the past three years and 0.75% over the past five.
The Mackenzie Strategic Bond strategy (including Mackenzie Canadian Strategic Fixed Income ETF) earns initial Above Average People and Average Process Pillar ratings. These ratings reflect the strategy’s experienced, collaborative portfolio-management team and its competent approach within the Canadian fixed-income Morningstar Category.
Lead manager Konstantin Boehmer has guided the team’s evolution toward a broad, research-driven, and collaborative approach. Together with veteran portfolio managers Felix Wong and Mark Hamlin, he leads this investment-grade bond strategy. Their work draws upon a stable team of portfolio managers with broad expertise and an expanding credit research team of five analysts.
The strategy’s process is grounded in a blend of macroeconomic analysis and fundamental credit research, with active management of interest rate and credit exposures using qualitative and quantitative insights. The team’s approach is broadly in line with industry standards: It seeks to add value by adjusting the portfolio’s exposure to credit and interest rate risk.
The managers typically favor investment-grade corporate bonds over government issues, with no more than 5% of the portfolio in non-investment-grade securities. The team manages the mutual fund and exchange-traded fund vehicles in the same way, but the Mackenzie Strategic Bond Fund differs from the Mackenzie Canadian Strategic Fixed Income ETF by allowing up to 2.5% in private credit. It held less than 1% position in the asset class as of March 2025. The strategy’s tilt toward lower-rated BBB credit has historically driven outperformance versus its peers during strong credit markets, but this positioning can cause the fund to lag when government bonds rally.
Since Boehmer was named to this strategy in July 2013, performance has been competitive, with the F series outpacing both the Morningstar Canada Core Bond Index and the peer group average on an absolute and risk-adjusted basis. But results in 2023 and the first quarter of 2025 highlight the strategy’s sensitivity to credit and interest rate positioning, where tactical calls detracted from returns. Overall, the strategy’s track record and experienced team highlight its appeal for investors seeking actively managed exposure to Canadian fixed income.
Luke Richardson, analyst
Read Morningstar’s full report on the Mackenzie Canadian Strategic Fixed Income ETF.
Vanguard Canadian Aggregate Bond Index ETF
- : C$7.5 billionFund Size
- Index Fund: Yes
- MER: 0.09
- : GoldMorningstar Medalist Rating
Over the past year, the Vanguard fund rose 3.13%, while the average fund in its category rose 3.51%. The fund, launched in November 2011, has climbed 4.48% over the past three years and 0.42% over the past five.
Vanguard Canadian Aggregate Bond Index ETF provides a well-constructed portfolio of investment-grade Canadian bonds at an attractive price tag.
The fund tracks the Bloomberg Global Aggregate Canadian Float Adjusted Bond Index, which captures Canadian-dollar-denominated, investment-grade bonds. Eligible bonds must have at least one year remaining until maturity and CAD 150 million outstanding. The index excludes bonds with equity features, floating-rate notes, and most contingent capital securities except regulatory bail-in bonds and nonviable contingent capital that major banks are required to issue. It weights selected bonds by their market value, excluding the amount held by the Canadian government to reflect what’s available to the public.
The fund invests most of its assets—around 70% to 75%—in government and government-related bonds. This includes around 25% to 30% in Treasuries and around 35% in provincial and municipal bonds. Unlike in the US market, where Treasuries account for the largest portion of the bond market, Canadian provinces have taken over as the largest investment-grade issuers. These bonds are often riskier than Treasuries and therefore offer a higher yield. Nonetheless, they still enjoy the full taxation power of Canadian provincial governments and are generally safer than corporate bonds.
The average category peer only invests around half of its assets in government and government-related bonds. The fund’s overweight position in government bonds translates into a muted credit-risk profile. That helps it fare better during credit shocks, such as the 2020 coronavirus-driven drawdown or the market volatility seen earlier in 2025. However, the lack of credit risk will be a drag on its performance when credit spreads compress.
A heavy allocation to government bonds may also leave this fund more sensitive to rising government-bond yields or increases in interest rates. Its duration doesn’t usually deviate too far from the category average, so underperformance has been minimal when yields rise. Overall, the fund’s low fee and superior downside protection should preserve its edge over category peers long-term.
Lan Anh Tran, analyst
Read Morningstar’s full report on the Vanguard Canadian Aggregate Bond Index ETF.
iShares Core Canadian Universe Bond Index ETF
- : C$10.1 billionFund Size
- Index Fund: Yes
- MER: 0.1
- : GoldMorningstar Medalist Rating
Over the past year, the BlackRock fund rose 3.56%, while the average fund in its category rose 3.51%. The fund, launched in November 2000, has climbed 4.14% over the past three years and 0.46% over the past five.
IShares Core Canadian Universe Bond Index ETF offers a well-constructed portfolio of investment-grade Canadian bonds at an attractive price tag.
The fund tracks the FTSE Canada Universe Bond Index, which includes Canadian-dollar-denominated investment-grade bonds. Eligible issues must have at least one year remaining until maturity and a minimum issuance size of CAD 100 million. The index excludes floating-rate notes, mortgage-backed securities, and convertible bonds, but includes regulatory bail-in bonds and nonviable contingent capital that major banks are required to issue.
Market-value weighting parks the majority of the fund’s assets with the largest issuers, namely the Canadian federal and provincial governments. The fund tends to invest between 70% and 75% of its assets here, which includes a 25%-30% stake in Treasuries and around 35% in provincial and municipal bonds. Provincial bonds are often riskier than Canadian Treasury bills and are not tax-exempt, unlike US municipal bonds. These securities, therefore, offer a higher yield than otherwise equivalent federal bonds. Nonetheless, they still enjoy the full taxation and fiscal power of the Canadian provincial governments and are generally safer than corporate bonds.
The average category peer tilts more toward corporate bonds than government bonds. The fund often underweights corporate bonds by around 20 percentage points compared with the category average. The resulting muted credit risk profile helps the fund cushion returns during credit shocks, such as the 2020 coronavirus-driven drawdown or market volatility seen earlier in 2025. However, a lack of credit risk will be a drag on its performance when credit spreads tighten.
A heavy allocation to government bonds may leave this fund more sensitive to rising government bond yields or increases in interest rates. Its duration doesn’t usually deviate too far from the category average, so underperformance has been minimal when yields rise. Overall, the fund’s low fee and superior downside protection should preserve its edge over category peers long-term.
Lan Anh Tran, analyst
Read Morningstar’s full report on the iShares Core Canadian Universe Bond Index ETF.
