Exchange-Traded Funds, or ETFs, are a great way for Canadian investors to diversify their portfolio holdings while saving on transaction fees.
ETFs are a much cheaper alternative to traditional mutual funds. The MER or Management Expense Ratios for ETFs can be as low as 0.05%.
Over the long term, a lower MER can result in higher returns on your investment.
ETFs are available at most brokerages across Canada. Discount brokerages like Wealthsimple and Questrade offer free ETF investments, so you save even more on trading fees.
This review of the Vanguard Canadian Aggregate Bond Index ETF (VAB) will cover its holdings, performance, fees, pros and cons, and how Canadian investors can purchase it.
What is VAB?
VAB (Vanguard Canadian Aggregate Bond Index ETF) is a Vanguard Canada ETF that was established in November 2011. It trades on the Toronto Stock Exchange.
The ETF is designed to track the broader performance of the Bloomberg Global Aggregate Canadian Float Adjusted Bond Index.
Investors who are seeking lower risk and diversification of their portfolio can consider adding a bond ETF like VAB.
VAB is a bond ETF, which means it does not hold any stocks. It is primarily invested in North American bonds, with a 40.8% allocation to Canadian Provincial and Municipal bonds.
As with most bonds, investors should not expect significant gains. Rather VAB can be used as a low-risk investment that returns a monthly distribution.
Here are some key facts for VAB as of April 2022:
- Inception date: November 30, 2011
- Number of bonds: 1,131
- Management fee: 0.08%
- MER: 0.09%
- Assets under management: $3.35 billion
- 12-month trailing yield: 2.67%
- Distribution yield: 2.97%
- Distribution frequency: Monthly
- Eligible accounts: RRSP, TFSA, RRIF, TFSA, DPSP, RDSP
- Currency: CAD
VAB Holdings
VAB is an all-bond portfolio, which means it is not a strictly growth-oriented fund. It is a low-volatility ETF with steady, monthly distribution payments.
Lower volatility ETFs are excellent for diversifying your equities portfolio. Bonds remain relatively even throughout market ups and downs.
While you can see all of the different stocks in an all-stock ETF, bond ETFs are built differently.
Here is the geographical diversification of VAB’s bond holdings.
| Geographical Region | Allocation |
| North America | 97.80% |
| Other | 1.10% |
| Europe | 0.90% |
| Pacific | 0.20% |
And here is the distribution by credit quality for VAB:
| Credit Rating | Allocation |
| AAA | 35.4% |
| AA | 42.4% |
| A | 14.0% |
| BBB | 8.2% |
| NR | 0.0% |
For bonds, the credit rating refers to the creditworthiness of the bond. It is a measure of how likely the debt will be repaid. Higher credit ratings equate to more stable and safer investments.
And here is the distribution by credit issuer for VAB:
| Credit Issuer | Allocation |
| Provincials/Municipals | 40.8% |
| Treasury/Federal | 22.9% |
| Financial Institutions | 12.0% |
| Agencies | 10.7% |
| Industrials | 10.1% |
| Utilities | 2.5% |
| Supranational | 1.1% |
| Cash | 0.0% |
| Sovereign | 0.0% |
Here is the distribution by credit maturity for VAB:
| Maturity | Allocation |
| Over 25 years | 14.3% |
| 20-25 years | 7.0% |
| 15-20 years | 6.4% |
| 10-15 years | 4.8% |
| 5-10 years | 28.4% |
| 1-5 years | 39.2% |
| Under 1 year | 0.0% |
And finally, here are the top bond holdings in VAB:
| Holding Name | Maturity Date | Allocation |
| Canadian Government Bond | December 1, 2051 | 1.72% |
| Canadian Government Bond | June 1, 2031 | 1.63% |
| Canadian Government Bond | December 1, 2031 | 1.46% |
| Canadian Government Bond | June 1, 2030 | 1.39% |
| Canadian Government Bond | February 1, 2024 | 1.21% |
| Canadian Government Bond | December 1, 2030 | 1.05% |
| Canadian Government Bond | August 1, 2023 | 1.00% |
| Canadian Government Bond | March 1, 2026 | 0.93% |
| Province of Ontario Canada | June 2, 2045 | 0.92% |
| Canada Housing Trust No 1 | June 15, 2024 | 0.90% |
VAB Returns and Performance
As mentioned, VAB is a bond ETF, so its long-term performance growth will not be as much as most all-stock portfolios.
Since inception, the market price and NAV have performed as follows:
| Year | NAV | Market Price (CAD) |
| 2012 | 3.00% | 2.93% |
| 2013 | -1.82% | -1.88% |
| 2014 | 8.79% | 8.97% |
| 2015 | 3.48% | 3.57% |
| 2016 | 1.34% | 1.25% |
| 2017 | 2.24% | 2.27% |
| 2018 | 1.34% | 1.16% |
| 2019 | 6.58% | 6.71% |
| 2020 | 8.55% | 8.60% |
| 2021 | -2.72% | -2.85% |
Since its inception, VAB has had an annual average return of 2.39% and a cumulative return of 27.59% to investors.
It is important to note that, as with any investment, past performance is not indicative of future returns.
VAB ETF Fees
VAB has very reasonable fees as it is a passively managed portfolio that holds assets with long-term expiry dates.
The management fee for VAB is 0.08%, and the MER is 0.09%. This puts VAB among some of the lowest-priced ETFs on the market.
Pros and Cons of Vanguard VAB
VAB is a great way for Canadian investors to add stability to their portfolios.
It is not a great source of long-term capital growth, but monthly distributions are the trademark of bond investments.
The low fees for VAB mean you will see more of your long-term returns as gains.
Bond ETFs should not be looked at as growth investments. As you can see from VAB’s performance, it lags the broader equity markets.
Some investors might not enjoy the slow growth of investing in bond ETFs like VAB.
VAB vs. ZAG
ZAG is the BMO Aggregate Bond Index ETF and was established in 2010. It also trades on the Toronto Stock Exchange.
It has a management fee of 0.08% and an MER of 0.09%, which is the same as VAB.
ZAG holds a total of 1,433 bonds and pays an annualized monthly distribution yield of 3.38%.
Here are the top BMO ETFs in Canada.
VAB vs. VSB
VSB is the Vanguard Canada Short-Term Bond Index ETF and was established in 2011 on the same date as VAB. It also trades on the Toronto Stock Exchange in Canadian dollars.
VSB has a management fee of 0.10% and MER of 0.11%, which makes it slightly more expensive than VAB.
VSB holds a total of 474 bonds and pays an annualized monthly distribution yield of 2.40%.
VAB vs. XBB
XBB is the iShares Core Canadian Universe Bond Index ETF and was established in November of 2000. It also trades on the Toronto Stock Exchange.
XBB has a management fee of 0.09% and an MER of 0.10%, as well as a risk rating of low.
It holds a total of 1,453 bonds and pays an annualized monthly distribution yield of 2.80%.
How To Buy the Vanguard VAB ETF in Canada
You can easily purchase VAB on any brokerage, including discount brokerages like Questrade and Wealthsimple Trade.
Questrade
Questrade offers Canadian investors the ability to trade in all standard financial assets, including stocks, ETFs, mutual funds, options, and bonds.
ETF purchases are free on Questrade, but selling your ETF investments comes with a fee of $4.95 per trade.
Questrade has a highly-rated platform that can be used on desktop and mobile devices.
Questrade
Trade stocks, ETFs, options, etc.
Low and competitive trading fees
Top platform for advanced traders
Get $50 trade credit with $1,000 funding
Wealthsimple Trade
Wealthsimple Trade is a popular investing platform amongst younger Canadians and is one of the best online stock brokerage platforms in the country.
It offers no-commission ETF trading for both buy and sell orders, as well as no trading commissions on stocks as well.
Wealthsimple Trade has an intuitive and simple interface for both desktop and mobile devices.
Wealthsimple Trade
Trade stocks and ETFs for free
Great trading platform for beginners
$25 cash bonus when you deposit $200+
Transfer fees waived up to $150
Is VAB a Good Buy?
Bond ETFs aren’t for every investor. Some might find the growth too slow, even with the monthly distributions.
That said, VAB is a solid addition to any diversified portfolio. Bonds add stability and steady distributions, even while the equity markets are experiencing volatility.
Canadian investors who are looking for an inexpensive way of adding bonds to their holdings should consider VAB as a solid choice.
VAB ETF Review FAQs
VAB is a fine investment for Canadian investors looking for exposure to the Canadian bond market. The fund is designed for moderate capital growth and has an attractively low MER.
Yes, although for the bond market, they are referred to as distributions. VAB pays a monthly distribution with an annualized monthly yield of 2.97%.
Bond ETFs can be bought on any brokerage platform in Canada. For Canadian investors who wish to save on trading fees, discount brokerages like Wealthsimple Trade and Questrade are ideal.
Yes, bond ETFs are actually generally safer than all-stock ETFs. The bond market sees less volatility, which results in less long-term growth.
Related:
- BMO S&P 500 Index ETF Review
- Best REIT ETFs in Canada
- Best Canadian Penny Stocks
- How To Buy ETFs in Canada
Vanguard Canadian Aggregate Bond Index ETF Review
Overall
Summary
Vanguard Canadian Aggregate Bond Index ETF is one of the best bond ETFs in Canada. This VAB ETF review covers its holdings, returns, fees, how to buy in Canada and how it compares to ZAG, VSB, and XBB.
