Highlights from a recent conversation with Rachel Siu, Head of Canadian Fixed Income, BlackRock Asset Management Canada Limited. Rachel shares her perspective on how to approach fixed income investing in this evolving market environment.
A year of rate cuts and market shifts
Many global central banks, including the Bank of Canada, began cutting rates in 2024 as inflation began to slow. Canada, being more rate-sensitive, saw larger rate cuts compared to other economies, including the United States. The latest CPI (Consumer Price Index) figures reflect that inflation is within the Bank of Canada’s target (1 – 3%), keeping the door open for further rate normalization . With declining yields, Canadian fixed income performed well in 2024. The FTSE Canada Universe Bond Index returned over 4% in 2024, thanks to lower front-end yields and tightening credit spreads.
Fixed income ETFs had a banner year
In 2024, Canadian fixed income ETFs saw record-breaking inflows as investors sought to capitalize on attractive bond yields. Demand was strong for high-quality core fixed income and income-focused investments.
Looking ahead: What 2025 holds
With President Trump’s re-election, uncertainty looms around tariffs and trade policies. Markets expect the Bank of Canada to continue cutting rates, with at least one or two more reductions expected in 2025, barring economic disruptions from trade policies.
How to approach fixed income in this environment
Overall yields remain attractive across the fixed income spectrum, though volatility is elevated. With increased market uncertainty, BlackRock sees an opportunity for investors to take a more tactical approach — being selective with geographic and sector exposures. Dispersion across markets means there’s opportunity in being nimble and diversifying across regions and sectors.
Where can advisors find the best income opportunities?
Investor demand for reliable income remains strong, especially as the number of retirees grows. The good news? Investors can still build well-diversified fixed income portfolios that can offer attractive income without excessive risk in today’s environment.
Introducing iShares Flexible Monthly Income ETF
Launched in Canada in September 2024, iShares Flexible Monthly Income ETF (XFLX) is designed to maximize income while diversifying across global fixed income sectors. The fund has gained strong momentum among investors looking for attractive yields without excessive credit or duration risk.
• Weighted average yield-to-maturity 6.2%
• Average credit quality: BBB
• Duration: 2.5 years
• Managed by: BlackRock’s Fundamental Fixed Income Investment team, led by Rick Rieder
• Sector exposure: Non-traditional fixed income sectors such as European credit, securitized assets, bank loans, high yield and collateralized loan obligations
• Risk control: Risk is thoughtfully sized and deliberately diversified across the global opportunity set
Why XFLX?
XFLX prioritizes income while limiting exposure to core sectors like U.S. Treasuries and U.S. investment-grade corporate bonds (capped at 20%). This ensures a well-balanced mix of global credit opportunities while aiming to provide strong risk-adjusted returns. The strategy has seen significant success in the United States, gathering over US $8 billion in assets since May 2023.
As we move into 2025, staying flexible with fixed income allocations will be crucial. Investors who embrace global diversification and active risk management may be well positioned to navigate the evolving landscape.
Related ETFs
XFLX iShares Flexible Monthly Income ETF (CAD-Hedged)
XFLI iShares Flexible Monthly Income ETF
XFLI.U iShares Flexible Monthly Income ETF (USD Units)