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From our Canadian Bureau: BGI Canada Launches First Bond ETFs

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Two new bond exchange-traded funds (ETFs) managed by Barclays Global Investors Canada began trading today on the Toronto Stock Exchange (TSE). The two new Canadian ETFs are the iUnits Government of Canada 5-Year Bond Fund (iG5) and the iUnits Government of Canada 10-Year Bond Fund (iG10).

"These two new products provide investors with a convenient and flexible way to diversify by asset class and, when combined with our i60 Fund and other new iUnits funds, will enable investors to build complete, balanced portfolios based on iUnits," said Gerry Rocchi, President of BGI Canada.

ETF name
TSE ticker
Total Assets ($ millions)
Expense ratio
iUnits Government of Canada 5-Year Bond Fund
XGV
92
0.25%
iUnits Government of Canada 10-Year Bond Fund
XGX
89
0.25%

Source: www.iunits.com, all data as of 11/22/2000[/:Author:]
The two new iUnits funds are the world's first fixed-income ETFs.

However, the new ETFs are not based on a Canadian bond index. Instead, the funds will invest in one "on the run" (most liquid) Government of Canada bond that has a time to maturity that closely matches the benchmark bond maturity. As a result, the iG5 and iG10 will never hold more than one security at any time.

According to Steve Rive, General Manager of iUnits at BGI Canada, indexing in bonds provides fewer advantages than equities indexing.

Oftentimes, bond indexes are comprised of thousands of bonds. However, the bonds in a bond index generally vary very little in their gross returns and offer lower diversification than stock indexes. Therefore, expenses more than anything affect bond returns, and holding a great number of bonds will generate higher expenses. The alternative, optimizing the portfolio, also increases management expenses.

The iG5 and iG10 will distribute net income to unitholders on a semi-annual basis and net realized capital gains on at least an annual basis, according to BGI Canada.

BGI Canada also announced that it has filed a preliminary prospectus for six new iUnits ETFs: a Canadian mid-cap, funds tracking information technology, energy, financial, and gold sectors, as well as the i60C Fund - based on the S&P/TSE Capped Index.