1.BMO Short Corporate Bond ETF
ZCS (TSX)
The BMO Short Corporate Bond ETF (ZCS) emphasizes a strategy focused on short-term corporate bonds, earning a Silver Morningstar rating for its quality and efficiency in this asset class. With a dividend yield of approximately 3.59%, it offers investors a safer alternative that can potentially enhance returns compared to traditional cash holdings. While the 1-year return stands at 1.74%, investors should note the longer-term 5-year performance, which has seen a decline of 3.56%.
Pros:
- Focuses on short-term corporate bonds
- Highly rated for quality and efficiency
Cons:
- Negative 5-year return
- Market volatility risk
2.iShares Core Canadian Short Term Bond Index ETF
XSB.TO (TSX)
Ideal for investors seeking low-cost exposure to Canadian investment-grade bonds, the iShares Core Canadian Short Term Bond Index ETF (XSB) offers monthly distributions and has a strong historical performance. With a dividend yield of 3.15%, it has delivered a 1.27% return over the past year, although its five-year performance reflects a decline of 4.25%. This ETF focuses on bonds with maturities of 1-5 years, making it a strategic option for those looking to balance risk and yield.
Pros:
- Low-cost exposure to Canadian investment-grade bonds
- Monthly distributions
Cons:
- Negative 5-year return
- Limited growth potential in a low-interest-rate environment
3.iShares Core Canadian Universe Bond Index ETF
XBB.TO (TSX)
The iShares Core Canadian Universe Bond Index ETF (XBB) is an attractive option for investors seeking a diversified fixed-income portfolio. With $9 billion in assets under management, it tracks the FTSE Canada Universe Bond Index, encompassing a wide array of high-quality government and corporate bonds, and offers a dividend yield of 3.39%. While the 1-year return stands at 1.11% and the 5-year return is -14.79%, the ETF's consistent monthly payouts make it a solid choice for income-oriented investors.
Pros:
- Broad exposure to investment-grade debt securities
- High assets under management
Cons:
- Negative 5-year return
- Sensitivity to interest rate changes
4.Vanguard Canadian Aggregate Bond Index ETF
VAB.TO (TSX)
Vanguard Canadian Aggregate Bond Index ETF (VAB) offers a well-constructed portfolio of investment-grade Canadian bonds with an impressively low expense ratio of just 0.09%. With a dividend yield of 3.33%, this ETF provides reliable monthly income for investors, although it has returned only 1.23% over the past year and suffered a -14.66% decline over the last five years.
Pros:
- Tracks a broad Canadian bond index
- Low expense ratio of 0.09%
Cons:
- Negative 5-year return
- Potentially lower yields compared to other investments
5.BMO Aggregate Bond Index ETF
ZAG.TO (TSX)
The BMO Aggregate Bond Index ETF (ZAG) is a highly regarded investment option with over $12.1 billion in assets under management, recognized for its low expense ratio of 0.09% and broad diversification across government and investment-grade corporate bonds. With a dividend yield of 3.48%, it offers a stable income stream, making it particularly suitable for retirees seeking to reduce portfolio volatility while still supporting withdrawals.
Pros:
- Most popular Canadian bond ETF
- Broad diversification in government and investment-grade corporate bonds
Cons:
- Negative 5-year return
- Sensitive to rate hikes
Final Words
As you consider the best bond ETFs this January 2026 in Canada, remember that comparing different options can help you find the investment that aligns with your financial goals. Take time to explore these opportunities and conduct thorough research to make informed decisions.
Frequently Asked Questions
The iShares Core Canadian Short Term Bond Index ETF (XSB) provides low-cost exposure to Canadian investment-grade bonds with maturities ranging from 1 to 5 years. It is passively managed to track an index of short-term Canadian debt securities.
The iShares Core Canadian Short Term Bond Index ETF has a dividend yield of 3.15%. It distributes dividends on a monthly basis, with the next dividend set at $0.0700.
Over the past year, the iShares Core Canadian Short Term Bond Index ETF has returned 1.27%. Its performance varies over different time frames, with a 3-year return of 4.32%.
Yes, the iShares Core Canadian Short Term Bond ETF is suitable for conservative investors due to its focus on investment-grade bonds and lower volatility compared to equities. However, investors should always consider their individual risk tolerance and financial goals.
Generally, a GIC ladder is expected to outperform a short-term bond ETF like XSB, as GICs typically offer higher yields based on more term risk. Investors should weigh the benefits of liquidity and potential returns when comparing these options.
Investing in bond ETFs like the iShares Core Canadian Short Term Bond Index ETF carries risks including interest rate risk, credit risk, and market risk. It's important for investors to understand these risks and how they may affect their investment outcomes.
