The table below shows the tracking error of Canadian bond and commodity ETFs in 2010.

To make sure you understand these numbers in their proper context, see my earlier post on tracking errors for Canadian equity ETFs.

Fund Index Tracking
Broad bond market Ticker return return error
iShares DEX Universe Bond XBB 6.4% 6.7% -0.4%
TD Canadian Bond index – e-Series TDB909 6.4% 6.7% -0.3%
TD Canadian Bond index – I-Series TDB966 6.0% 6.7% -0.7%
BMO Aggregate Bond ZAG 5.1% 5.4% -0.2%
Claymore Advantaged Canadian Bond CAB 5.2% 6.2% -1.0%
iShares DEX Long Term Bond XLB 12.1% 12.5% -0.4%
iShares DEX Short Term Bond XSB 3.2% 3.6% -0.3%
Government bonds
iShares DEX All Government Bond XGB 6.1% 6.5% -0.5%
Claymore 1-5 Yr Laddered Gov’t Bond CLF 3.3% 3.5% -0.2% (1)
BMO Short Provincial Bond ZPS 3.5% 3.8% -0.3%
BMO Short Federal Bond ZFS 2.9% 3.2% -0.3%
BMO Long Federal Bond ZFL 5.7% 5.9% -0.1% (2)
BMO Emerging Markets Bond * ZEF 8.5% 9.1% -0.6% (2)
Corporate bonds
iShares DEX All Corporate Bond XCB 6.6% 7.3% -0.8%
Claymore 1-5 Yr Laddered Corp Bond CBO 3.8% 4.0% -0.2%
BMO Short Corporate Bond ZCS 3.9% 4.3% -0.4%
BMO Mid Corporate Bond ZCM 5.8% 6.1% -0.3% (2)
BMO Long Corporate Bond ZLC 10.7% 11.5% -0.8% (2)
Real-return bonds
iShares DEX Real Return Bond XRB 10.6% 11.1% -0.5%
BMO Real Return Bond ZRR 7.0% 7.2% -0.2% (2)
Claymore Gold Bullion CGL 26.6% 29.2% -2.7% (3)
Horizons BetaPro COMEX Gold HUG 26.8% 28.6% -1.8%
Horizons BetaPro COMEX Silver HUZ 77.2% 81.6% -4.4% (4)
Horizons BetaPro NYMEX Crude Oil HUC 4.8% 8.0% -3.2%
Horizons BetaPro NYMEX Natural Gas HUN -37.6% -36.3% -1.3%
Claymore Natural Gas Commodity GAS -49.8% -48.2% -1.6%


1. The 3.3% return of CLF is based on the fund’s net asset value (NAV). The return on market price was just 2.8% — a significant difference. With bonds so unpopular these days, the forces of supply and demand may have driven down the price of this fund.

2. Several of BMO’s bond ETFs launched in 2010, so these returns do not cover a full year.

3. CGL’s return based on market price was 29.12%, two and a half percentage points higher than its return based on NAV, and only eight basis points off the spot price of gold. Just as an aversion to bonds seems to have lowered CLF’s price, the continuing gold mania helped this ETF trade at a premium in 2010.

4. Silver was the big winner of 2010 and investors in the Horizons BetaPro COMEX Silver ETF would have been dancing in the streets with their 77% return. But the large tracking error here shows that precious metals ETFs using futures contracts (as opposed to those that hold gold or silver bullion) can carry significant frictional costs. They may not closely track the spot price of the commodity.

Postscript. Horizons ETFs sent me this response regarding HUZ: “The tracking error is primarily due to the fact that the silver futures contracts are priced in U.S. dollars and HUZ doesn’t hedge intraday currency fluctuations; HUZ rebalances the FX hedge at the end of the day. We believe this accounts for most of the 4% difference in the performance of the ETF versus the performance of  its index. Please keep in mind that any ETF, whether it is physically backed or futures-backed, will likely be subject to this currency differentiation.”