PowerShares government bond ETF employs laddered strategy

Morningstar Canada 28 February, 2018 | 6:00PM

PowerShares 1-5 Year Laddered All Government Bond Index (symbol: PGB), opened for trading today on the NEO Exchange. It becomes the fifth Canadian-listed exchange-traded fund offered by PowerShares to employ a laddered strategy. This approach is designed to reduce interest-rate risk and reinvestment risk by diversifying fixed-income maturities.

The new ETF's benchmark is the FTSE TMX Canada 1-5 Year All Government Laddered Bond Index. The management fee is 0.15%, which includes most expenses. This fee matches that of PowerShares' closest but not identical competitor, iShares 1-5 Year Laddered Government Bond Index (CLF), which holds Government of Canada and provincial government bonds and tracks a slightly different benchmark. The iShares ETF's benchmark is the FTSE TMX Canada 1-5 Year Laddered Government Bond Index.

By comparison, the PowerShares ETF will hold a wider range of investment-grade government credits of Canadian issuers. Along with Government of Canada and provincial bonds, it will also hold bonds issued by government-backed agencies and municipalities.

In a release, sponsor Invesco Canada Ltd. notes that including agency, provincial and municipal issues in the PowerShares ETF offers the potential for higher yields than a portfolio composed solely of Government of Canada bonds of similar maturity and credit quality.

About Author

Morningstar Canada

Morningstar Canada