0

I am looking at some Canadian bond funds (recommendations welcome) for my RRSP. Relatively safe, and with a dividend yield ~ 3% is good enough. While looking at Fidelity bond funds, I came across this fund

My questions are: This does not say anything about the distributions/yield etc. i.e How much does it pay out in dividends over the year? The fund gets income from coupons, does it automatically reinvest them?

Why does it have such a high beta of 0.98? Bonds are supposed to provide diversification, how come it has such a high correlation with the beta?

Is the Beta calculated w.r.t S&P500 or some Canadian index like TSX 60?

2

Beta is calculated using the benchmark:

Fund benchmark** FTSE TMX Canada Universe Bond Index

this is from the bar on the right hand side. Beta measures only how closely a fund's returns follow a benchmark and a beta of 0 < beta < 1 means that the fund is correlated with the benchmark but under-performing the benchmark, a beta > 1 would mean that it is out-performing the benchmark. 0.98 is not a high beta but it does mean that the fund is sticking very closely to the benchmark (a beta of 1 would be the same return as the benchmark). Given that the fund consists of bonds that are only in the universe defined by the benchmark it is only the exact constitution of the fund that differs from that benchmark (the exact bonds differ). That the fund can only contain instruments within the benchmark's universe it cannot be more diversified than the benchmark.

In general bond funds reinvest coupon payments to prevent having to pay cash out frequently and to simplify ownership. The return on the fund includes coupon payments and any losses to defaults etc..

note: I am making some assumptions based upon GIPS reporting standards because I am working in that domain currently.

  • If they reinvest coupons, then we cannot get monthly payments. Is there a Canadian bond fund that pays out dividends? – Victor123 Apr 9 '15 at 14:14
  • @Victor123 You can sell units if you need to draw income from a fund that reinvests income it receives. Because you are investing inside an RRSP, there is no tax difference in redeeming units vs. getting explicit regular distributions from the fund. – Chris W. Rea Apr 9 '15 at 15:58
  • @ChrisW.Rea min lot sizes can restrict the exact amount of regular income that you can take but, yes, that would be my solution. – MD-Tech Apr 9 '15 at 15:59
  • Thanks. I will go with something like XBB, that pays dividends in cash, not automatically re invest. – Victor123 Apr 9 '15 at 16:31
  • 1
    @Victor123 w.r.t. mutual funds, if you are interested in regular income without needing to sell units, then generally speaking you'll find that funds with the word "income" in their name often aim to spin off regular monthly distributions. Still, ETFs have lower fees and for that reason I prefer them, too. – Chris W. Rea Apr 9 '15 at 16:56

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.