Finding unique investment solutions in target maturity bond funds

How do investors get the best of both worlds? We believe the answer is target maturity bond funds. These investments offer a unique opportunity to own a diversified, professionally managed, yield-enhancing bond portfolio. Target maturity funds also offer pre-designated term to maturity dates that give investors the same certainty in return of capital as owning an individual bond or GIC.

An added benefit is that target maturity strategies also offer advantageous characteristics of traditional bond funds such as diversification by investing in a variety of corporate and government issuers to avoid concentration risk, as well as the active management by portfolio managers and credit research teams. With target maturity bonds, investors benefit from active security selection decisions. Portfolio managers find the best individual bonds to invest in from a risk-reward standpoint as well as the institutionalized structure that comes with a large fixed income platform — including execution, portfolio analytics and team experience.

As part of a well-balanced investment strategy, investors should also look for mutual funds and portfolio managers that prioritize buying discount bonds. A discount bond is a bond that offers a lower coupon than the prevailing market rate and therefore trades below its par value. For taxable investors, the return profile of discount bonds can offer a significant tax advantage when compared to GICs. This is because a larger portion of the total return is derived from capital gains, which receive lower tax treatment than interest income.

This is important because the current backdrop offers a unique opportunity for investors to buy both government and corporate bonds that are currently trading at a discount to their par value — a phenomenon that hasn’t occurred since the 1980s.

Overall, we think now is a unique and exciting time to explore new ways to drive outcomes for investors. Target maturity bonds can play a key role in the fixed income portion of a well-balanced investment portfolio.

CIBC Asset Management is committed to providing market and investment insights as well as best-in-class research. We want to help you find the right solutions to guide your investment journey. If you'd like to discuss this market and economic update in more detail or have questions about your investment portfolio, get in touch with your advisor or CIBC representative anytime.