Key Morningstar Metrics for Vanguard Canadian Aggregate Bond Index ETF
- : GoldMorningstar Medalist Rating
- : Above AverageProcess Pillar
- : Above AveragePeople Pillar
- : HighParent Pillar
- : Index FundIndex/Active
Vanguard Canadian Aggregate Bond Index ETF VAB provides a well-constructed portfolio of investment-grade Canadian bonds at an attractive price tag.
This exchange-traded 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—roughly 75% on average—in government and government-related bonds. This includes around 25% to 30% in Government of Canada bonds and around 35% in provincial and municipal bonds. Canadian provinces have taken over as the largest investment-grade issuers. These bonds are often riskier than Government of Canada bonds 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 Canadian fixed-income Morningstar Category peer invests only around 50% of its assets in government and government-related bonds on average, making the portfolio relatively high-quality by comparison. That helps it fare better during credit shocks, such as the 2020 coronavirus-driven drawdown. However, the lack of credit risk can drag on 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 in the long term.
Vanguard Canadian Aggregate Bond Index ETF: Performance Highlights
The ETF has performed well. It outperformed its average Canadian fixed-income category peer by 19 basis points annualized from its 2011 inception through July 2026. It did so with slightly more volatility but better risk-adjusted returns.
The ETF tends to outperform its average peer when credit spreads widen, making it more resilient to credit shocks. That benefited the fund substantially during the oil shock in 2014 and 2015, when it outperformed its average peer by 2.0 and 1.3 percentage points, respectively. Over that period, credit spreads widened significantly as investors traded corporate bonds for government bonds.
The opposite is true when credit markets rally. The fund lagged its average peer by 66 and 69 basis points in 2012 and 2013, respectively, as corporate bonds held up better than its higher-quality holdings, with rising government yields adding to the pressure in 2013. Tightening credit spreads produced a similar result in 2024, when the ETF trailed its average peer by 37 basis points.
Nonetheless, the fund’s high-quality tilt makes it more resilient than peers during credit shocks. Its duration is similar to the category average, but its larger stake in government bonds leaves it less exposed to widening credit spreads and more reliant on movements in Government of Canada bond yields.
