In this edition of ‘Stock Teasers’ we are going to be looking at a submission to /r/CanadianInvestor on Reddit where the user is deciding between two ETFs for the fixed income portion of their portfolio. Let’s dive in!

Below we can see the user’s submission where they highlight their decision between the XBB and CASH ETFs looking for some input. We will look at both options and determine which one is more viable.

XBB vs CASH

First looking at XBB which is the iShares Core Canadian Universe Bond Index ETF. XBB provides investors with exposure to the Canadian investment grade bond market. It is highly liquid at $7.625 billion in net assets, has an MER of 0.10%, pays a 3% yield, and is up 9.4% over the last year. XBB’s portfolio is primarily comprised of government bonds (federal 39.91% & provincial 33.28%) but financials are the next largest holding at 9.54%. Two important metrics being a bond ETF are the effective duration at 7.26 years and weighted average maturity of 9.98 years. These two metrics tell us that XBB’s holdings have a medium-term tilt. XBB is a longstanding ETF which has an annualized return of 4.48% since inception at the end of December 2000.

Next, looking at CASH which is the Global X High Interest Savings ETF. CASH invests essentially all its assets in high-interest deposit accounts at Canadian banks. One of the big benefits of CASH, is due to its ETF structure, investors are free to remove their money as they please, whereas actual savings accounts will have minimum investment periods and amounts. CASH is highly liquid at $5.15 billion in net assets, has an MER of 0.11%, pays a 4.95% yield, and is up 5% over the last year. CASH is quite new with an inception in November of 2021, but its annualized return since is 3.79%.

Our Thoughts

Ultimately, we can see that the two options are very different. While both have low risk income focuses, CASH is a high-interest savings ETF that allows investors to not have to worry about the liquidity of a traditional HISA. CASH should not be seen as a traditional fixed income investment, but more-so as a short-term savings account. XBB on the other hand, is a medium-term bond ETF, which would fit into the traditional fixed income bucket of investments. The medium-term and high-quality holdings of the ETF makes it an attractive option for an investor seeking a diversified Canadian fixed income holding.

Thinking of this question in another manner, unless an investor is very risk averse, there is no need to hold money in CASH over a long-term period. CASH acts as a proxy savings account with the added benefits due to it being an ETF. The specific percentage of one’s portfolio in savings accounts would typically be lumped in with other general cash holdings due to the liquidity and short-term nature of these investments. There would be no problem owning both of these, but understanding the purpose of each product helps address this user’s questions.

Unlock the Power of Informed Investing with 5i Research!

DIY investing doesn't have to mean going it alone. At 5i Research, we're your trusted partner in navigating the stock market. Our platform offers comprehensive stock and market research, empowering you to make smart investment decisions. 

• Investor Q&A: Have burning questions? Get answers from our team of experts and fellow investors in our dedicated Q&A section.
• Research Reports: With over 60 meticulously researched Canadian stocks, our reports offer in-depth analysis, giving you the confidence to invest wisely. 
• Model Portfolios, Alerts, Forums, Portfolio Tracking, and Much More...