Key Morningstar Metrics for iShares Core Canadian Corporate Bond Index ETF XCB
- : GoldMorningstar Medalist Rating
- : Above AverageProcess Pillar
- : Above AveragePeople Pillar
- : Above AverageParent Pillar
IShares Core Canadian Corporate Bond Index provides broad exposure to investment-grade Canadian corporate bonds. The exchange-traded fund has slashed its fee in recent years, improving its competitive advantage
The fund tracks the FTSE Canada All Corporate Bond Index, which includes investment-grade, CAD-denominated corporate bonds with at least one year remaining until maturity. Qualifying issues must have at least CAD 100 million issuance size. The index also excludes certain types of bonds, including convertibles and mortgage-backed securities. It weights selected bonds by their market value, which tilts it toward the most indebted issuers.
Heavy financials sector concentration characterizes the investment-grade corporate bond market in Canada. Investors should be aware of these firm-specific risks before taking the plunge. The fund tends to invest roughly 40% of its assets in financial issuers, with about 20% in the five largest Canadian banks. These institutions are classified as domestic systemically important banks and tend to carry credit ratings between AA and A.
Roughly 20% of the fund’s assets are currently allocated to bail-in debt from financial institutions, with most coming from the largest five banks. These securities will be converted to equity if Canadian regulators deem the issuer no longer viable. A nonviability scenario will unlikely be a surprise, as capital requirements are very robust in Canada. The Canadian banking sector has historically displayed its strength, which translates to credit ratings between AA and A for these securities. Issuance has picked up for these securities in the past few years as part of a larger regulatory effort to strengthen Canadian banks’ balance sheets.
Compared with its average Canadian fund corporate fixed-income Morningstar Category peer, the fund’s credit risk profile looks slightly more conservative. Actively managed funds in the category have the flexibility to pick up BB rated bonds for extra yield. Nonetheless, the fund’s average yield to maturity has been in line with the category average. The fund has a slightly longer average effective duration than peers, since it tends to prefer longer-dated debt.
While the fund’s straightforward approach might lag more nimble peers when risky assets are in favor, its broad portfolio does a good job of capturing this part of the market, and its low fee allows it to still keep pace. The fund often outperforms in credit shocks, offering better protection than the category average.
iShares Core Canadian Corporate Bond Index ETF: Performance Highlights
From its 2006 inception through May 2026, the fund outperformed the peer median by 56-basis-points annualized, largely thanks to its cost advantage of 37 basis points. The fund can be more volatile than most peers, but risk-adjusted returns tend to be comparable. Over shorter horizons, its total return advantage narrows. The fund matched the peer median return over 10 years and beat it by 13 basis points annualized over the past three years.
The fund’s conservative credit profile has helped during major credit shocks. It outperformed the peer median by 1.39 percentage points in 2008, and it held up well during the March 2020 shock, benefiting from its investment-grade-only mandate and absence of high-yield exposure at a time when lower-quality credit sold off sharply.
The fund can lag when credit risk does well or when its relatively longer duration works against it. In 2021, it trailed the peer median by 13 basis points as spreads tightened in the postpandemic recovery and peers with high-yield flexibility captured more of the upside. The fund fell 6 basis points further in 2022 than the 9.96% peer median decline, since its longer duration slightly amplified losses during a sharp rate-hiking cycle. The target-maturity funds that populate the category absorbed less of the rate shock because of their significantly shorter duration profiles.
