To the Canadian PP folks: how does ZFL compare to holding individual bonds

[christina]

The question is in the subject line.
I will be performing a rebalance soon, and have to buy some bonds, but unfortunately I need less than the 5K minimum.
So I will be putting cash into ZFL instead (unless there is a better option).

I would like to know how closely ZFL comes to tracking 45-year bond prices. As in, will ZFL go up and down roughly the same amount and at the same time as 45 year bonds purchased on the same day?

Thanks!
Christina

[Gosso]

The question is in the subject line.
I will be performing a rebalance soon, and have to buy some bonds, but unfortunately I need less than the 5K minimum.
So I will be putting cash into ZFL instead (unless there is a better option).

I would like to know how closely ZFL comes to tracking 45-year bond prices. As in, will ZFL go up and down roughly the same amount and at the same time as 45 year bonds purchased on the same day?

Thanks!
Christina

ZFL is similar to holding a 22 year Canadian bond. http://www.etfs.bmo.com/bmo-etfs/glance?fundId=80004

TLT is similar to holding a 28 year US bond. http://us.ishares.com/product_info/fund ... ew/TLT.htm

Based on my records, here is how they have performed since April 2011 (when I started the PP):
- ZFL = 21.0%
- TLT = 38.4%
- 2041 Canadian Bonds = 31.2%

I'm not sure if Canada will see Germany-like yields on the 30 year (30 year Canadian is currently yielding 2.33%), so you might not lose out on too much upside by slightly shortening the long bond duration.  But then again I bought RIM shares at $14 (damn my patriotism!), so what do I know.

[christina]

Thanks Gosso!
Wow, what a difference.

[bluedog]

Thanks for starting this thread.

I started my CA PP in Jan 2012.
I just bought ZFL for the LT's as I was out of the country at the time and it was easier not have to deal with a bond desk.

Now back in Canada, I've been thinking that I need to buy the actual individual bonds, but haven't had the guts to do so.
What's the best strategy to switch out of ZFL for the individual bonds?

Which bonds would you purchase 2041 or 2045?
Does the coupon price matter?

I've been afraid to sell the ZFL d/t low trading volumes and not wanting to be in a position of not holding any LT's.
Would you keep a certain percentage of ZFL for re-balancing, knowing the minimal bond purchase is $5k?
I currently hold $75K of ZFL in the largest portfolio.

Thanks for the discussion. Hopefully, I will finally buy the individual bonds.

[Gosso]

Bluedog, orthodox pp tells us to purchase the longest dated bonds possible.  So the 2045 is better than zfl in that respect.

You want a lower coupon if taxable, since your return will be more from cap gains rather than interest payments. Also lower coupon is more volatile.

Don't worry about the volume on zfl, since bots keep the spread relatively low and close to nav.  Although check the tier two quotes to confirm.

You won't need zfl for rebalancing since a 40% move is $30000 on a holding of 75000.  Although if you want to do annual rebalancing then it might make sense to keep some zfl.