Time for Core (Plus) Bond Portfolios Again?

Posted By Financial Independence Hub | September 4, 2026

By Christy Tan and Lukasz Labedzki, Franklin Templeton Institute

(Sponsor Blog)

Investment Implications

We see growing evidence suggesting that investors should consider moving from a short-duration bias toward core (plus) bond portfolios. This is largely predicated on the fact that valuations have become more attractive across fixed-income sectors, with all-in yields approaching compelling levels. Our guidepost remains 10-year Treasury yields near the upper end of their recent range. We continue to believe that this is a market for an active, selective approach.

Please see our sector views below.

Central banks: We have a new Federal Reserve (Fed) chair, and if we take him at his word, it feels
like a new environment has begun. The rhetoric is hawkish, reinforcing that the 2% inflation target is
by no means soft. Importantly, there’s also a strong push for no forward guidance, with the market
invited to react to incoming data as it sees fit. That likely means a higher-volatility environment and,
all else equal, a higher risk premium demanded by bond investors. As a result, all eyes are now on
the data. If the data fails to confirm moderating inflation, the market will demand Fed action. If the
data does confirm it, the market can justify a pause. In both cases, longer duration can perform
well. The risk is the Fed policymakers talking but not acting when needed: that would make the
bond market angry. We see the risk-reward of extending duration as improving and are happy to do
so at certain yield levels.

US Treasuries: Our view is that 10-year Treasury yields will remain broadly range-bound, which
means the closer they get to 4.75%, the more attractive it becomes to move into intermediate
duration. We believe it is reasonable to begin extending duration around those yield levels.

Developed markets credit: Historically elevated investment-grade bond issuance that the market
needed to absorb widened spreads from their tights to levels closer to fair value, while the broader
fundamental backdrop remains healthy. Supply should also slow in the second half of the year. In
the high-yield space, spreads have also widened somewhat. We remain biased toward higher-rated
issuers in high yield. All-in yields are attractive and provide resilience across a range of scenarios.

Emerging market (EM) debt: While it has been the best-performing fixed-income sector
year-to- date, we think it’s time to be more selective. In local-currency EM debt, Latin America
has been the top performer (as we highlighted), and we expect this to continue. As a stronger US
dollar remains a risk, in our view allocations should be balanced with US dollar-denominated EM
debt, which is less sensitive to currency moves.

Euro bonds: As mentioned previously, we believe German Bund yields (Europe’s benchmark
government bond yields) will remain broadly range-bound. They closely track expected mone-
tary policy, which has recently been driven largely by gas prices. With Bund yields above 3.1%, we
find them attractive for medium-term investors. Hedged yields for US dollar-based investors are
on par with US Treasuries, meaning there is little opportunity cost to global diversification.

Performance Snapshot

Global fixed-income performance has remained largely uninspiring this year, with the Bloomberg
Global Aggregate Index still slightly underwater. Relative performance has been stronger in
emerging market debt, particularly US dollar-denominated debt. The picture is more nuanced in
local-currency EM debt, which we discuss later. US high yield has also outperformed. Within
higher-quality fixed income, US short-duration strategies have also held up relatively well. These
are essentially the sectors we have been highlighting throughout the year.

US Treasuries

We believe benchmark 10-year Treasury yields will remain broadly range-bound, and investors should take advantage when yields are close to the upper end of that range (~4.75%). Recent history (Exhibit 2) suggests this strategy has worked well and remains our playbook for the second half of 2026.

Of course, yields could move higher, but at these levels we view the risk-reward as favorable and do not see a high risk of yields moving significantly above the recent range over the coming months. The main reason is that a lot is already priced in: the market expects more than two Fed hikes over the next 12 months,1 while the current term premium (the risk premium in bond jargon) is close to 70 basis points (bps),2 versus a recent high of around 90 bps. A meaningful move above 5% in 10-year Treasury yields would likely require a further significant repricing of both monetary policy expectations and the term premium.

The major risk is that the Fed turns more hawkish than in our base case. We acknowledge this risk, but we also think that realized hikes could, in fact, cause longer-duration bonds to catch a bid, as they would demonstrate a strong commitment to fighting inflation and could lead to a repricing of growth expectations.

For conservative mandates, we continue to view short-duration bonds as a portfolio pillar. They are highly resilient across scenarios: two-year Treasury yields would need to rise above 9% before investors started losing money, assuming a one-year investment horizon (Exhibit 3).

Developed Markets Credit

The major story in credit markets lately has been investment-grade (IG) bond supply, driven in part by hyperscaler borrowing. More than US$1.2 trillion3 of IG issuance came to market through the first six months of the year: well above historical norms (Exhibit 4). Continue Reading…

Canadian Kids picking up on their Parents’ Money Stress, new Vanguard Survey finds

Posted By Financial Independence Hub | September 2, 2026

Even when parents try to shield their children from financial worries, a new study suggests kids are hearing more than parents realize.

As the cost of living continues to squeeze Canadian households, a new survey from Vanguard Canada suggests the strain isn’t confined to parents’ bank accounts; it’s also shaping how their children think and feel about money too.

The survey of just over 1,000 Canadian parents of children under 18 found that households that talk openly about money raise more financially literate kids, while households that avoid the subject may be doing more harm than good.

The Instinct to Protect backfires

Many parents try to keep financial stress away from their kids. Among parents who describe themselves as financially stressed, more than two thirds said they feel pressure to hide their worries from their children, and roughly a third said they avoid discussing money at home altogether.

But the survey suggests that instinct doesn’t work the way parents hope. Seven in ten financially stressed parents said their children overhear money conversations anyway. In fact, those children were found to be nearly five times more likely to feel anxious about money than their peers.

Sal D’Angelo, Head of Vanguard Investments Canada, said children pick up on far more than parents assume, even when adults try to keep financial matters private. He framed early financial education as key to helping the next generation build healthy money habits.

A Literacy Gap that starts early and closes late

The survey also points to a timing problem. Households where money is discussed regularly produce children with markedly stronger grasp of core concepts like banking, debit and credit, which is nearly three times higher comprehension according to the findings.

Yet the majority of parents said substantive money conversations don’t begin until their child is between 15 and 18 years old, well after attitudes toward money have already started to form. Continue Reading…

How to tell what a Stock is actually Worth: A Beginner’s Value Checklist

Posted By Financial Independence Hub | September 1, 2026

Run this checklist automatically on any stock at travisvaluation.ca

By Curtis Travis

Special to the Financial Independence Hub

Nearly a century ago, Benjamin Graham — the man who taught Warren Buffett — put the whole game in one sentence: “Price is what you pay; value is what you get.”

The trouble is that your brokerage app shows you the price in giant letters and says nothing at all about the value. So, most of us end up buying the number that’s flashing, not the business behind it.

The good news is that estimating what a business is worth doesn’t require a finance degree, a Bloomberg terminal, or a spreadsheet the size of a bedsheet. Graham built his reputation on a handful of simple, repeatable checks that any patient investor can run. What follows is a beginner’s version of that checklist: six questions to ask before you buy. To keep the math clean I’ll use one example company with rounded figures: a fictional-but-typical Canadian retailer trading at $60 a share. (Real numbers move daily, so when you do this for keeps, pull the current figures first.)

Price is what you pay; value is what you’re hunting for

Before the checks, one mindset shift. A $500 stock isn’t “expensive,” and a $5 stock isn’t “cheap.” Cheap and expensive only mean something relative to what you get: the earnings, the assets, and the safety behind the share. Every check below is really the same question asked five different ways: am I paying less than this business is worth?

Check 1: Is it cheap relative to its earnings? (the P/E)

The price-to-earnings ratio is the first thing to look at. Take the share price and divide by earnings per share (EPS). Our retailer earns $5 a share, so at $60 its P/E is 12.

Graham liked to see a P/E under 15. A P/E of 12 means you’re paying $12 for every $1 of annual profit: or, flipped around, an “earnings yield” of about 8%. That’s a reasonable starting point. Anything north of 25–30 means the market is pricing in a lot of future growth, and you’re paying today for profits that may or may not show up.

Check 2: Is it cheap relative to what it owns? (the P/B)

Earnings can be lumpy, so Graham cross-checked price against the company’s book value: roughly, what would be left for shareholders if the company sold its assets and paid off its debts. Divide price by book value per share. Our company’s book value is $40 a share, so its price-to-book is 1.5.

Graham considered 1.5 a sensible ceiling for a defensive investor. Below 1 means you’re buying the assets for less than their stated worth: rare, and worth a closer look. Well above 3 means little of what you’re paying is backed by tangible assets; you’re buying expectations.

Check 3: Can it actually pay its bills? (interest coverage)

A cheap stock that can’t service its debt isn’t a bargain: it’s a trap. Interest coverage tells you how comfortably a company covers its loan payments: take operating earnings (EBIT) and divide by annual interest expense. Our retailer covers its interest 8 times over.

As a rule of thumb, above 5x is comfortable, and below 2x is a flashing yellow light: a bad year could put the company in a squeeze. This one check quietly eliminates a lot of “value traps” that look cheap only because they’re fragile.

Check 4: How close is it to trouble? (the Altman Z-Score)

In the 1960s, professor Edward Altman combined five financial ratios into a single distress-predictor called the Z-Score. You don’t need to compute it by hand, but you should know how to read it:

Above 3.0 — financially healthy. 1.8 to 3.0 — a grey zone; tread carefully. Below 1.8 : elevated risk of serious financial distress.

Our example lands around 3.2: solid. The Z-Score is a wonderful “sniff test” precisely because it’s hard to fool: a company can dress up one ratio, but rarely all five at once.

Check 5: The rare, deep bargain (net-net / net current asset value)

This is Graham’s most famous trick, and his most demanding. Add up only a company’s current assets — cash, receivables, inventory — then subtract all its liabilities. Divide by shares outstanding. If the stock trades below that “net current asset value,” you’re theoretically buying the ongoing business for less than nothing. Continue Reading…

A different take on the Active vs Passive Debate: Can’t we all just get along?

Posted By Financial Independence Hub | August 31, 2026

By Noah Solomon,

Special to Financial Independence Hub

There’s something happening here
What it is ain’t exactly clear

I think it’s time we stop
Children, what’s that sound?
Everybody look what’s going down

For What It’s Worth, by Buffalo Springfield

Over the past two decades, the asset management industry has witnessed a massive transformation during which assets have migrated from active to passive approaches.

Notwithstanding the obvious appeal of passive investing, I believe that most of the debate between active vs. passive management misses some critical points. This month, I discuss why active vs. passive is not an either/or proposition and how the two approaches are not mutually exclusive. I will also discuss what I refer to as the three pillars of active management: the characteristics that determine whether an active manager can add value to investors’ portfolios.

The Trend is your Friend …. Until the End when it Bends

In 16 of the past 35 years, the majority of active large-cap U.S. managers outperformed their benchmark. However, there have been environments when active managers clearly dominated passive portfolios, such as the period from 2000 to 2009, when more than 50% of active large-cap U.S. managers outperformed the index in nine out of ten years.

Passive investing is not a panacea. Capitalization-weighted indexes are price momentum-based strategies that are forced buyers of overpriced assets during bubble scenarios. As a result, they tend to do well in rising markets dominated by a few sectors or individual securities. However, this concentration can be very costly during market downturns. There is no built-in buffer or margin of safety and no risk management: just full participation, up or down.

By contrast, active managers are often constrained by individual stock and sector weighting constraints and/or valuation discipline. It is not coincidental that the majority of active managers outperformed during the post tech-bubble bear market of the early 2000s when unreasonably valued technology stocks which were heavily weighted in indexes suffered severe price declines.

Pillar #1: Dare to be Different

Many so-called active funds closely mirror their benchmark indices. These “closet indexers” offer no real value. The math is cruelly straightforward: if an active manager holds a portfolio that is not materially different from their benchmark, then their performance will approximate that of the index less fees (near-guaranteed underperformance). Moreover, such portfolios are almost perfectly correlated to their benchmarks, which renders them utterly incapable of providing diversification vs. benchmark indexes. and providing downside protection in bear markets.

Academic studies have shown that funds which differ materially from their benchmark indexes were more likely to outperform. Make no mistake: holding a portfolio that differs materially from the benchmark doesn’t guarantee outperformance, but it shows that at least you’re trying!

The issue of closet indexing has been particularly pervasive in Canada. A 2013 paper titled “The Mutual Fund Industry Worldwide: Explicit and Closet Indexing, Fees, and Performance” analyzed the prevalence of closet indexing in different countries. Out of the 20 countries which the study analyzed, Canada ranked highest in terms of the percentage of its actively managed funds that were not truly active, with over 40% identified as closet indexers. This is not surprising given the relatively small size of the Canadian markets and the associated scarcity of highly liquid stocks. Once a fund gets to a certain size, it has little choice but to hug the index unless the manager is willing to sacrifice liquidity and flexibility.

Pillar #2: Downside Protection

From a long-term investing perspective, avoiding losses is more powerful than capturing every last basis point of upside. It takes a 43% gain to recover from a 30% loss. In the past 25 years, the S&P 500 has fallen 30% or more three times. Preserving capital in such environments makes it easier to recover and better compound wealth over the long term. All outperformance is not created equal: outperformance in bear markets is of greater value than outperformance in bull markets. Active managers who can preserve capital in bear markets offer significant value for their clients.

Pillar #3: Consistency

Assessing a manager’s performance across a full market cycle is imperative for understanding the advantage of their approach and their ability to navigate challenging markets. Consistency is essential: a manager who almost always lands in the top half of their peer group offers better long-term results than one who places in the top quintile in one year and falls to the bottom the next. Importantly, managers who consistently protect on the downside are better positioned to deliver outperformance over the long term. Continue Reading…

Covered Call ETFs: Why Total Return matters

Posted By Financial Independence Hub | August 28, 2026

High yield doesn’t equal better returns: Learn how covered call ETFs really work and why Total Return matters before you invest.

By Jimmy Xu, BMO Global Asset Management

(Sponsor Blog)

Covered call ETFs have become a popular solution for investors seeking cash flow, particularly in today’s uncertain market environment. With distribution yields that are often meaningfully higher than traditional equity ETFs, they can appear attractive at first glance.

But focusing on yield alone can be misleading.

To properly evaluate covered call ETFs, investors need to look beyond the potential yield and focus on Total Return: and understand how different strategies are implemented.

What are Covered Call ETFs?

Covered call ETFs generate returns by holding a portfolio of equities and selling call options¹on some or all of those holdings.

This strategy produces three sources of return:

Dividends
Net stock price appreciation from the equities held
Option premiums² from the calls sold

In exchange for that additional return generated from the option premiums, investors give up some upside potential if markets rise strongly: because the ETF may cap some upside participation at predetermined prices.

The result is typically higher cash flow with lower volatility, but more muted upside in strong markets.

The problem with Focusing only on Yield

One of the biggest misconceptions about covered call ETFs is equating high yield with strong performance.

In reality, yield is only one component of return. What ultimately matters is Total Return: the combination of dividends, premiums and equity price appreciation.

A strategy that pays a 10% yield but delivers little or no equity capital growth may lag a lower-yielding strategy over time; investors may also experience the net asset value (NAV) decline over time as distributions erode the initial investment. Conversely, a covered call ETF that balances premium generation with participation in market upside can potentially deliver stronger total outcomes.

That’s why evaluating these ETFs requires a broader lens asking questions such as: how much upside is being sacrificed? How sustainable are the distributions? What is the long-term return profile?

BMO’s Covered Call Approach: A more active Framework

Not all covered call strategies are built the same. BMO’s approach differs in two key ways:

Active Option Management

Rather than mechanically selling calls on a fixed percentage of the portfolio, BMO takes a more active approach: adjusting the following based on timing and market conditions:

The percentage of the portfolio covered
Strike price selection (how far “out of the money” calls are written)

This allows the strategy to balance cash flow generation with participation in equity upside, particularly during stronger markets.

Partial Coverage vs. Fully Covered

Some covered call ETFs write options on nearly the entire portfolio, maximizing distributions but limiting growth potential.

BMO strategies uses a range of partial coverage, meaning a portion of the portfolio remains uncovered which preserves the ability to participate in rising markets while still generating cash flow.

Our June 2025 Enhancement

In June 2025, BMO refined its covered call approach to further emphasize potential total return outcomes.

While the specifics vary by ETF, the changes broadly reflected:

A more flexible coverage range, rather than static coverage targets
Greater emphasis on out-of-the-money³ call writing, allowing for more upside participation
A continued shift toward actively managing the trade-off between cash flow and potential growth

The goal was clear: move away from maximizing yield alone and toward delivering a more balanced cash flow & growth profile over time.