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Corporate Bonds -Fixed Income RESP

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asked Jan 21, 2016 04:00 PM by
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Hi Jin,

In an RESP Portfolio what do you think of holding in the fixed income portion only Short Term Corporate Bonds ?

My Daughter is still young and she won't be using her RESP before years, I was then thinking of including in the fixed income portion of her RESP portfolio only Short Term Corporate Bonds (Using an ETF such as VSC or ZCS)

Logic behind this thought is that Short Term Corporate Bonds appear to be me as a “good compromise” in an environment of low yields and volatility. They offer better yield than regular Short term bonds and are of course less risky than equities

However, when I compare performance vs Yield over time between a Short Term Corporate Bonds ETF (VSC For example) and a regular Short Term ETF Bond (VSB), I can see that yield difference between VSC and VSB is lower than performance reached (regular Short Term ETF Bond will perform better than Short Term Corporate Bonds ETF and variance in performance will beat variance in yield)

So I am not sure anymore about this thought

Thanks for your help

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answered Jan 22, 2016 01:45 PM by
Jin Won Choi gravatar image Administrator

Hi Just Trade,

I personally think it's reasonable to substitute the short term bond component of a portfolio with a short term corporate bonds ETF. Unless the corporations in question default, the short term bond ETF that has higher yields will always perform better than a similar ETF with lower yields in the long run.

Jin

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Hi Jin, That is what I thought too. However, when I review 3 Years Period Performance between short term bond component (VSB) and short term corporate bond (VSC), I see that short term bond ETF has performed better than short term corporate bond Thanks

Just Trade ( Jan 22, 2016 02:40 PM )edit

That can happen whenever investors feel more nervous about corporate bonds. However, that effect will only be temporary unless a company actually defaults.

Jin Choi ( Jan 23, 2016 09:00 PM )edit
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Asked: Jan 21, 2016 04:00 PM

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