Skip Navigation

Blog Series: Solving your investment problems
Part 1: Solving the low yield conundrum

Naseem Husain, CIM, FCSI,  

Vice President ETFs

Advisors and investors have a variety of concerns when it comes to growing wealth. Today’s financial markets bring several key challenges that investors didn’t have to worry about 20 years ago. Apart from low bond yields and volatile markets, there is also a dizzying array of choice. There are so many more providers of solutions offering so many funds that it can be very confusing. Investors need trusted partners to help them cut through the noise.

Also, information can often be presented in non-standard ways, which can make it difficult to compare one product with another. Data is often presented over different time periods, with different yields, so it is sometimes hard to know when you’re comparing apples to apples.

This series of articles, “Solving your investment problems,” will be exploring those key concerns and suggesting some of the best solutions for each one.

Part 1: Solving the low yield conundrum 

The problem: low fixed income yield

One solution to consider: active fixed income investments

Bond yields have been in the 1% region for some time now, which can cause real problems for Canadians who need their savings to deliver income to live on, while still providing stability. This is way less than the 4-5% range they typically need to match their income strategies.

Active fixed income ETFs can be a key potential solution and one that many investors are taking advantage of. A total of $878 million flowed into the active fixed income ETF category in the 90 days leading up to Feb 18, 2021. There’s a very good reason for this. Rather than having to decide for themselves where to allocate their fixed income dollars, many investors prefer to hand that choice over to an active manager. This manager has a team of analysts and a dedicated trading team that live and breathe fixed income and are constantly looking for opportunities to benefit from a potential upside. Now could be the ideal time to have active fixed income exposure.

When yields are low, investors often turn to dividend paying equities in search of higher returns. However, this brings with it a greater risk. Active fixed income ETFs can deliver an alternative to going heavier on equities, so investors can maintain their preferred risk ratios.  

Let’s take a look at three particularly popular types of active fixed income ETFs that are currently delivering significantly higher yields.

Unconstrained bond ETFs

These ETFs don’t follow any index or rules; instead, investment managers are free to buy the debt that they feel best suits the fund’s purpose. Managers have much greater freedom to look for new opportunities, find previously undiscovered value and use risk-management tools to limit downturns.

Core Canadian fixed income ETFs

A chief benefit of active management is the freedom investment managers are given compared to an index ETF. They can avoid those Canadian companies that they are convinced will perform badly, rather than including them just because they are in the index. Managers are able to jump on opportunities, such as a renaissance in a particular sector, to create better yield opportunities and outperform the index. All while maintaining an A- credit rating or better.

Floating rate income ETFs

These typically have yields that are double or even triple those of some treasury bills and move in the same direction as interest rates. They are not a liquid as some other fixed income investments, so they enjoy a premium because of that illiquidity. The fact that interest rates can currently barely go lower could make these a very good choice right now, to take advantage of potential future rate hikes.

Some of Mackenzie’s fixed income solutions

Our fixed income ETFs are managed by Steve Locke’s team, which has been consistently punching above its weight and gaining outsized market share in these categories. For example, the team’s active fixed income ETFs recently captured 34% of the $878 million flowing into the category mentioned earlier. The team focuses finding on what it believes to be the best yield products with the least risk while also generating growth. Here is a brief run-down of three of their actively managed ETFs that fit into the categories described above:

Mackenzie Unconstrained Bond ETF – this is a far nimbler fund than the average bond ETF. Active managers can react quickly to changing market conditions and tactically adjust its holdings to minimize volatility from shifting interest rates. It has also experienced considerably higher growth than its comparable index. 

Mackenzie Core Plus Canadian Fixed Income ETF – this is a more flexible ETF with a wider range of investment opportunities than most Canadian index ETFs. It can deliver higher yields while still keeping risk low (with an overall credit quality of A- or better). Its growth has been consistently higher than its index.

Mackenzie Floating Rate Income ETF – contains loans that are generally below investment grade and therefore typically deliver higher income potential than conventional fixed income. It also potentially improves a portfolio’s diversification with its low correlation to conventional fixed income assets. Its growth has also consistently outperformed its comparable index. 

Innovative ETFs

ETF Insights Blog