FUND SUMMARY
The Claymore Advantaged Canadian Bond ETF seeks to provide a return based on the price and performance, before fees and expenses, of the DEX DLUX Capped Bond Index (“the Index”). The investment strategy of the fund is to obtain tax-efficient exposure to the constituent securities of the index through entering into a forward agreement with a Canadian Chartered Bank.
The ETF provides suitable investors of different sizes with the opportunity to gain exposure to a well diversified investment grade Canadian bond portfolio, capped at 60% allocation to government bonds and 40% allocation to corporate bonds.
DLUX Capped Bond Index Rules
The DLUX Capped Bond Index is designed to be a broad measure of the Canadian investment-grade fixed income market including both government and corporate investment grade bonds. Qualifying securities are selected from the constituents of the DEX Universe Bond Index, with the following criteria:
- Government securities represent 60% of the Market Value weight
- Corporate securities represent 40% of the Market Value weight
- Minimum issue size / amount outstanding of $300 MM
- Credit rating of A or higher1
- Annual Trade Volume turnover of 25% or higher
- Average quarterly Traded Volume of minimum $500 K per day in the last quarter
- The index is rebalanced:
- Daily to account for new issues or remove any issues due to rating downgrade
- Monthly (at month end) to adjust for market value weights to a 60/40 blend of government and corporate bonds
- Quarterly to remove any issues that do not meet the liquidity criteria
1 Ratings are provided by DBRS, Standard and Poor’s and Moody’s. The lowest rating available is used for purposes of the index rules
BENEFITS OF USING THE FORWARD STRUCTURE
The Fund utilizes an innovative Forward Agreement structure in order to provide exposure to the portfolio of the DEX DLUX Capped Bond Index on a tax-efficient basis. By using the Forward Agreement, the income generated by the index (interest income) will be recharacterized and paid to Unitholders of the ETF primarily as distributions of return of capital and capital gains. Another benefit of the Forward Agreement Structure is that it reduces the instances where capital gains may be realized as a result of any scheduled rebalancing of the underlying portfolio.
The above diagram is for illustrative purposes only. The forward structure is used to achieve the exposure to the DEX DLUX Capped Bond Index. Please see the Prospectus for further information.
THE ROLE OF BONDS IN A PORTFOLIO:
The main reasons for holding bonds in investor’s portfolio are: income, diversification, capital preservation and protection against economic slowdown
INCOME
Typically, bonds pay interest coupons semi-annually, which means they can provide a reliable and predictable income stream.
DIVERSIFICATION
Bonds are the foundation of a well diversified portfolio. Bonds are one of the main asset classes in the asset allocation process and their low correlation with other asset classes makes them a very important source of portfolio diversification which can significantly improve the risk-adjusted returns of the portfolio.
CAPITAL PRESERVATION
At their maturity date bonds pay to the bondholder a predetermined amount (par value) which provides for downside protection.
PROTECTION IN ECONOMIC DOWNTURN
During an economic downturn investment grade bonds have historically outperformed equities and other asset classes since they provide regular coupon payments and pay back the face value at their maturity date to the bondholder.
Correlation of Bonds1 with other Asset Classes
| ASSET CLASS | 5-Year | 10-Year | 15-Year |
| Canadian Equity2 | 0.10 | 0.01 | 0.17 |
| US Equity3 | 0.25 | -0.05 | 0.13 |
| International Equity4 | 0.30 | 0.11 | 0.06 |
| Emerging Markets Equity5 | 0.21 | 0.05 | 0.05 |
| Commodity6 | 0.01 | 0.06 | 0.10 |
Source: PC Bond & Bloomberg
1The DEX Universe Bond Index is a broad measure of the Canadian investment-grade fixed income market. 2The S&P/TSX Composite Index is a capitalization weighted index of the largest (by market capitalization) and most liquid stocks listed on the TSX. 3The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure the performance of the broad US economy. 4The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the performance of developed markets, excluding US & Canada. 5The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. 6The S&P GSCI® is a composite index of commodity sector returns representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities.