This post is part of a series called Under the Hood, where l take a detailed look at specific Canadian ETFs or index funds.
The fund: BMO Real Return Bond Index ETF (ZRR)
The index: The fund tracks the DEX RRB Non Agency Bond Index, which consists of inflation-linked bonds issued by the Government of Canada. It seems to have been created specifically for this ETF.
The cost: The ETF’s management fee is 0.25%. As with other BMO funds, the actual MER will be higher because it includes GST/HST and some other expenses.
The details: This brand-new ETF (it started trading on Wednesday, May 26) holds five real-return bonds issued by the federal government, each making up about 16% to 23% of the fund’s assets.
Real-return bonds — or Treasury Inflation-Protected Securities (TIPS), as they’re called in the US — are an important asset class, and some financial experts recommend them as a core holding.
Both the principal and the interest payments of real-return bonds are tied to the Consumer Price Index, so they go up with inflation.