BMO Government Bond Index ETF (ZGB) Review
We have embarked on a journey to explore ‘all’ of the exchange-traded funds (ETFs) created by the BMO Global Asset Management group. They have around 149 ETFs at the moment and the list keeps on growing. So, at least we will try to cover the most popular and best-performing ETFs in their portfolio. In this article, we talk about the BMO Government Bond Index ETF, ticker symbol; ZGB.TO in the Toronto Stock Exchange (TSX).
BMO Global Asset Management (BMO GAM) is a family member of the Bank of Montreal, Canada’s first bank. The company holds a massive portfolio of exchange-traded funds (ETFs) that fit different investment goals of their customers. From low-risk funds to high-risks and from moderate incomes to high incomes, they have funds that fit all your investment needs. A smart investor will invest in a collection of these ETFs to manage risk and increase yield.
The BMO Government Bond Index ETF is one of the best and safest income ETFs you will find in BMO’s portfolio and anywhere in general. This is because the ETF exclusively invests in government bonds.
When a federal or a provincial government needs money for its budget deficits, they issue bonds. These bonds carry a guaranteed interest and can vary in the term. If there was one thing guaranteed about investing, it would be the security of your money invested in government bonds. Unless otherwise the government itself falls and the country goes to anarchy, your returns are guaranteed.
Because of this nature of government bonds, BMO categorizes the BMO Government Bond Index ETF under ‘Defensive Income Interest’ because the returns are the safest invested in government bonds.
However, there is always a trade-off. The governing law behind investing is that “high risk = high returns.” Government bonds are the opposite of this formula; “low risk = low returns.”
| Quick Facts | ZSP.TO |
|---|---|
| Fund inception date | March 02, 2018 |
| Net Assets (Oct 8, 2021) | $1.2 billion |
| Exchange | Toronto Stock Exchange |
| Annualized distributions yield | 2.41% |
| Distribution frequency | Quarterly |
| Management expense ratio | 0.17% |
| Account eligibility | TSFA/RRSP/RESP/RRIF/DPSP |
According to BMO, ZGB ETF is designed to;
“replicate, to the extent possible, the performance of the FTSE Canada All Government Bond Index, net of expenses. The Fund invests in government bonds with a term to maturity greater than one year.”
FTSE Canada All Government Bond Index is put forth by FTSE Russell financial research firm. They create benchmarks across the bonds issued by governments and corporates across different geographies. FTSE bond indices are tracked by many investment firms across the world.
BMO Government Bond Index ETF (ZGB) Holdings
100% holdings of the ZGB ETF are maintained in government bonds. As of this article, the fund holds 269 different bonds and some cash. Below are the top 20 holdings of ZGB as of October 19, 2021.
| Holding Name | Weightage |
|---|---|
| CANADIAN GOVERNMENT BOND 1% 01Jun2027 | 2.86% |
| PROVINCE OF QUEBEC CANADA 3.5% 01Dec2048 | 2.76% |
| PROVINCE OF ONTARIO CANADA 2.4% 02Jun2026 | 2.55% |
| CANADIAN GOVERNMENT BOND 1.75% 01Mar2023 | 2.33% |
| CANADA HOUSING TRUST NO 1 2.9% 15Jun2024 | 2.31% |
| CANADA HOUSING TRUST NO 1 1.95% 15Dec2025 | 2.19% |
| CANADIAN GOVERNMENT BOND 2% 01Dec2051 | 2.10% |
| PROVINCE OF ONTARIO CANADA 2.6% 02Jun2027 | 2.05% |
| PROVINCE OF QUEBEC CANADA 3% 01Sep2023 | 2.00% |
| CANADIAN GOVERNMENT BOND 2.5% 01Jun2024 | 1.96% |
| CANADIAN GOVERNMENT BOND 2% 01Sep2023 | 1.96% |
| PROVINCE OF ONTARIO CANADA 2.8% 02Jun2048 | 1.94% |
| CANADIAN GOVERNMENT BOND 1.5% 01Jun2023 | 1.92% |
| CANADIAN GOVERNMENT BOND 2.25% 01Jun2025 | 1.72% |
| CANADIAN GOVERNMENT BOND 2.25% 01Mar2024 | 1.70% |
| CANADIAN GOVERNMENT BOND 3.5% 01Dec2045 | 1.63% |
| CANADA HOUSING TRUST NO 1 1.9% 15Sep2026 | 1.61% |
| CANADIAN GOVERNMENT BOND 4% 01Jun2041 | 1.57% |
| PROVINCE OF ONTARIO CANADA 2.65% 05Feb2025 | 1.57% |
| PROVINCE OF QUEBEC CANADA 3.1% 01Dec2051 | 1.48% |
The above list shows the government bonds held in ZGB ETF. Each bond is marked with its respective interest rates and maturity dates. There are interest rates varying from as low as 1% to as high as 5.75% and the weighted average of these interest incomes comes down to around 2.41%, which is still quite respectable.
BMO Government Bond Index ETF (ZGB) Performance
ZGB ETF is merely three years old and given the low and safe returns, this is not a long enough period to measure how the fund holds up in the long run. However, in the three years of its existence, ZGB has returned 13.03% to its investors. An investment of $10,000 in 2018 would have turned into $11,303 by 2021.
In the above performance graph, BMO’s ZGB ETF is compared against the FTSE Canada All Government Bond Index, and we can barely see the two lines apart. This tells us that BMO has been almost perfectly able to replicate the FTSE index.
IS ZGB ETF for You?
Anyone looking for a very safe income can rely on government bonds invested via an ETF dedicated for bonds. One thing to note is that, the return in this ETF, right now, is lower than the inflation in Canada (right now at a historic high of 4.4%). So, this ETF will give your portfolio very steady downside protection while you might want to pick some other stocks or funds to boost its income.
Check out the latest information about the fund on BMO.
Disclosure: Any information given in this article is not to be construed as investment advice. You must do your own research before investing any money in the stock market. All investments carry inherent risks even with the possibility of losing all your money.
