BXF tears a strip off competitors

Last year, I calculated the after-tax performance of ten short-term bond ETFs in an attempt to find the most tax-efficient of the bunch. The results were not even close – the First Asset 1-5 Year Laddered Government Strip Bond Index ETF (BXF) beat all other funds by a landslide (for the 2014 comparison, please refer to my past blog post, BXF no longer a strip tease).

This was no surprise to me. Back in February 2013, First Asset asked Canadian advisors to tell them what’s missing from the ETF landscape. Although much sexier ETFs were proposed by much sexier advisors, I suggested a boring tax-efficient strip bond ETF…and somehow won (maybe having the word “strip” in the title made it sound sexier than it actually was).

Fast forward three years. BXF has the lowest assets under management of all its peers, at a modest $62 million. It’s like watching your kid being picked last in sports. There’s only one difference – BXF is the better player (full disclosure: I was always picked last in sports – oh, and some of our PWL clients hold BXF).

Although it may not be the biggest ETF on the street, BXF has once again shown Canadian investors that size doesn’t matter. Not only did BXF have an after-tax return in 2015 that was more than a percent higher than the runner-up, it had a tax cost ratio of just 0.40% (a fund’s tax cost ratio is similar to a management expense ratio, but for taxes paid instead of management fees paid). It continues to gain recognition in 2016, when it was added to MoneySense’s ETF All-Stars list (Dan Bortolotti and I were part of the voting panel).

For investors who are looking for short-term tax-efficient bond exposure, BXF is expected to be the superior choice for taxable accounts. Investors and their advisors who ignore this innovative and simple product will likely continue to pay unnecessary taxes.

2015 Before-Tax and After-Tax Returns

SHORT-TERM BOND ETF	AUM (MILLIONS)	1-YEAR BEFORE-TAX RETURN	1-YEAR AFTER-TAX RETURN (PRE-LIQUIDATION)	TAX COST RATIO
First Asset 1-5 Year Laddered Government Strip Bond Index ETF (BXF)	$62	2.77%	2.36%	0.40%
BMO Short Federal Bond Index ETF (ZFS)	$242	2.26%	1.24%	1.00%
Vanguard Canadian Short-Term Bond Index ETF (VSB)	$806	2.41%	1.10%	1.28%
iShares Canadian Short Term Bond Index ETF (XSB)	$2,265	2.33%	0.97%	1.33%
BMO Short Provincial Bond Index ETF (ZPS)	$315	2.59%	0.99%	1.55%
Vanguard Canadian Short-Term Corporate Bond Index ETF (VSC)	$731	2.55%	0.88%	1.63%
iShares Core Canadian Short Term Corporate + Maple Bond Index ETF (XSH)	$411	2.62%	0.93%	1.65%
iShares 1-5 Year Laddered Government Bond Index ETF (CLF)	$1,079	2.56%	0.76%	1.76%
BMO Short Corporate Bond Index ETF (ZCS)	$883	2.58%	0.76%	1.78%
iShares 1-5 Year Laddered Corporate Bond Index ETF (CBO)	$2,091	2.14%	0.03%	2.06%

Sources: CDS Innovations, BlackRock Canada, BMO Asset Management, First Asset ETFs, Vanguard Investments Canada, Canadian Portfolio Manager

Justin Bender
CFA, CFP, B.Comm., Portfolio Manager

With more than a decade of experience managing portfolios, Justin is focused on keeping costs and taxes low for his clients. His skills as an analyst and researcher have made him widely respected in the ETF industry.

Contact Justin