• Investment Taxation

BXF tears a strip off competitors

Last year, I calculated the after-tax performance of ten short-term bond ETFs in an attempt to find the most tax-efficient of the bunch. The results were not even close – the First Asset 1-5 Year Laddered Government Strip Bond Index ETF (BXF) beat all other funds by a landslide (for the 2014 comparison, please refer to my past blog post, BXF no longer a strip tease).

This was no surprise to me. Back in February 2013, First Asset asked Canadian advisors to tell them what’s missing from the ETF landscape.  Although much sexier ETFs were proposed by much sexier advisors, I suggested a boring tax-efficient strip bond ETF…and somehow won (maybe having the word “strip” in the title made it sound sexier than it actually was).

Fast forward three years. BXF has the lowest assets under management of all its peers, at a modest $62 million.  It’s like watching your kid being picked last in sports.  There’s only one difference – BXF is the better player (full disclosure:  I was always picked last in sports – oh, and some of our PWL clients hold BXF).

Although it may not be the biggest ETF on the street, BXF has once again shown Canadian investors that size doesn’t matter. Not only did BXF have an after-tax return in 2015 that was more than a percent higher than the runner-up, it had a tax cost ratio of just 0.40% (a fund’s tax cost ratio is similar to a management expense ratio, but for taxes paid instead of management fees paid).  It continues to gain recognition in 2016, when it was added to MoneySense’s ETF All-Stars list (Dan Bortolotti and I were part of the voting panel).

For investors who are looking for short-term tax-efficient bond exposure, BXF is expected to be the superior choice for taxable accounts. Investors and their advisors who ignore this innovative and simple product will likely continue to pay unnecessary taxes.

2015 Before-Tax and After-Tax Returns

Short-Term Bond ETF

AUM (millions)

1-Year Before-Tax Return 1-Year After-Tax Return (Pre-Liquidation)

Tax Cost Ratio

First Asset 1-5 Year Laddered Government Strip Bond Index ETF (BXF)


2.77% 2.36%


BMO Short Federal Bond Index ETF (ZFS)


2.26% 1.24%


Vanguard Canadian Short-Term Bond Index ETF (VSB)


2.41% 1.10%


iShares Canadian Short Term Bond Index ETF (XSB)


2.33% 0.97%


BMO Short Provincial Bond Index ETF (ZPS)


2.59% 0.99%


Vanguard Canadian Short-Term Corporate Bond Index ETF (VSC)


2.55% 0.88%


iShares Core Canadian Short Term Corporate + Maple Bond Index ETF (XSH)


2.62% 0.93%


iShares 1-5 Year Laddered Government Bond Index ETF (CLF)


2.56% 0.76%


BMO Short Corporate Bond Index ETF (ZCS)


2.58% 0.76%


iShares 1-5 Year Laddered Corporate Bond Index ETF (CBO)


2.14% 0.03%


Sources: CDS Innovations, BlackRock Canada, BMO Asset Management, First Asset ETFs, Vanguard Investments Canada, Canadian Portfolio Manager



By |2017-01-17T15:01:15+00:00February 24th, 2016|Categories: Investment Taxation|Tags: |9 Comments


  1. Kevin December 15, 2016 at 2:11 pm - Reply

    Hi Justin,

    Is BXF still better for after tax returns with increasing rates like we’ve seen recently?

  2. Craig G June 14, 2016 at 1:57 pm - Reply

    Other than the counterparty risk, wouldn’t HBB be the best option? It’s a broad-market bond ETF with no distribution. I am holding it in a taxable account; do you recommend HBB for your clients or are you sticking mostly to GIC laders, BXF and/or ZDB? I am in mid-30s so in a building-up phase, no plans to draw down or access income from investments anytime soon.

    • Justin June 15, 2016 at 10:47 am - Reply

      @Craig G – I’ve tended to stay away from swap-based products with my clients, as I believe they are next in line to be shut down by CRA. If an investor is comfortable with the counterparty risk, I would expect that HBB would be a more tax-efficient choice relative to any of the broad-market plain-vanilla bond funds, or even ZDB.

      Although GICs are not directly comparable, I can currently purchase a 5-year GIC yielding 2.45%. Assuming a 50% tax rate on interest, the after-tax return would be about 1.23%

      HBB is currently yielding 1.82% before-fees. After accounting for its MER of about 0.17% and swap fee of 0.15%, the yield drops to about 1.50%. If we assume a tax rate of 50%, and that the growth is taxed as a capital gain, we end up with an after-tax return of about 1.13% [1.50% x (1 – 0.25)] – lower than the GIC. I understand that this does not take into account the tax-deferred growth on the unrealized capital gain versus the GIC, but the trade-off does not seem very compelling to me.

  3. Glen March 2, 2016 at 10:58 am - Reply

    Hi Justin, thanks for the great analysis. How would your compare BXF vs. ZDB (which Dan just wrote about over at CCP), in terms of the respective sustainability of their superior after-tax returns demonstrated thus far? I’m looking for a fixed income option for my non-registered account that I can keep buying and (mostly) forget about for many years.

    Thanks again, and looking forward to your insights.

    • Justin March 2, 2016 at 11:22 am - Reply

      @Glen – BXF is a short-term bond ETF (average maturity of about 3 years) and ZDB is a broad-market ETF (average maturity of about 10 years), so from an investment/risk perspective, they are not directly comparable. For short-term fixed income exposure, I tend to use a combination of 1-5 year GICs and BXF (BXF is useful for unexpected capital calls and rebalancing opportunities). For broad-market fixed income exposure, ZDB appears to be a better choice for taxable accounts than other broad-market bond ETFs, with the exception of HBB (if you are comfortable with the counterparty risk).

  4. Landon T February 24, 2016 at 10:54 am - Reply

    Hi Justin, great article. What would you say is the ideal time horizon for holding this fund? Less than 1 year? 0 to 5 years? Is it a good alternative to money market fund for cash that is being saved for use within the next few years? Thank you!

    • Justin February 24, 2016 at 11:04 am - Reply

      @Landon T – generally, you’d want a time horizon longer than about 3 years. I would just use a high interest savings account or 1-3 year GICs for any liabilities that are expected to occur before that time.

  5. Peter 'Buck' McGowan February 24, 2016 at 8:44 am - Reply

    Justin – thanks for the great info! Would you care to share any insight into how the after tax return is calculated?

    • Justin February 24, 2016 at 8:59 am - Reply

      @Peter ‘Buck’ McGowan – the methodology is available in the “White Papers” section of this blog (in the After-Tax Returns paper). The after-tax returns calculator is also available in the “Calculators” section of this website (if you feel like trying it out 😉

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