BBB-rated corporate bonds are becoming a bigger part of the Canadian market, according to an analysis by FTSE Russell.
In particular, at the end of January 2020, the FTSE Canada one- to 10-year corporate BBB bond index had 326 issuers, representing $141.1 million in market cap, which translates to 29 per cent of the FTSE Canada all corporate bond index.
In comparison, the FTSE Canada one- to 10-year corporate A+ bond index had 287 issuers, representing 42 per cent of the market cap of the Canada all corporate bond index.
Rewind to 2004, this was a very different picture, with just 105 BBB-rated Canadian corporate bonds, representing 14 per cent of the market cap of the FTSE Russell Canada all corporate bond index, and 304 A+ issuers, representing 66 per cent of the index.
“I think one of the takeaways for me is, know what you own and know what you’re getting exposure to and what’s actually making up your portfolio,” says Marina Mets, head of Americas fixed income and multi-asset index product management at FTSE Russell. Since the financial crisis, she notes, the issuance and prevalence of BBBs have significantly grown in the benchmarks.
“And it is prudent for investors to understand what kind of ownership you have, what kind of exposure you have and what kind of risk your portfolio carries.”
Of note, BMO Asset Management Inc. recently introduced two new exchange-traded funds based off the FTSE Canada one- to 10-year corporate BBB bond index and its one- to 10-year A+ corporate bond index.