Riding the Yield Curve: Why Manulife Smart Corporate Bond ETF (CBND.TO) Is a Must-Hold in 2025

In a world where central banks are tightening monetary policy and interest rates are on the rise, traditional fixed-income investors face a stark choice: chase yield or brace for volatility. The Manulife Smart Corporate Bond ETF (CBND.TO) offers a compelling middle ground. Recently declaring a CAD 0.0309 dividend per unit, this TSX-listed ETF is positioning itself as a high-yield, low-volatility option for income-focused investors. Here's why now is the time to act.

The Dividend Signal: Stability in Volatile Markets

The May 2025 dividend declaration of CAD 0.0309, payable on June 13 to unitholders of record as of May 30, underscores CBND's commitment to consistent income generation. With a monthly payout structure, this ETF provides a predictable cash flow stream—critical in an era where bond prices often gyrate with every Fed whisper.

But the real story lies in its performance. Despite a challenging five-year track record that saw its average annual return dip to -1.89% since inception (November 2020), CBND has delivered a 3.84% total return over the past year (as of May 2023 data). This rebound signals resilience in its investment-grade corporate bond portfolio, which focuses on Canadian issuers.

Why Rising Rates Favor CBND's Strategy

Rising rates typically pressure bond prices, but they also boost yields—particularly for shorter-duration, higher-yielding instruments. CBND's diversified portfolio of Canadian corporate bonds offers two key advantages:

1. Credit Spread Opportunity: Corporate bonds often outperform government bonds in a rising rate environment because their yields are less sensitive to rate hikes. CBND's focus on investment-grade issuers (with lower default risk) ensures investors capture this spread without excessive risk.
2. Duration Management: Unlike long-dated government bonds, corporate debt typically has shorter durations. This means CBND's portfolio is less vulnerable to price declines when rates rise.

The ETF's strategy aligns with broader market trends. As highlighted in recent analyses, multi-sector bond approaches—balancing interest-rate and credit-spread risks—have historically outperformed single-sector benchmarks like the Bloomberg U.S. Aggregate Bond Index. While CBND isn't a multi-sector fund, its corporate focus provides similar diversification benefits.

The 2025 Rate Environment: Tailwinds for Income Investors

Central banks' pivot toward rate hikes has created a “sweet spot” for income seekers:
- Higher Yields: Corporate bonds now offer elevated yields compared to pre-pandemic levels, with Canadian issuers benefiting from strong balance sheets post-pandemic.
- Normalized Yield-to-Duration Ratios: The FTSE Canada All Corporate Bond Index's yield-to-duration ratio has improved, reducing the risk of sharp price declines.

CBND's May 2025 dividend—declared in an environment where the Fed is pausing its rate hikes—hints at stable cash flows ahead. With the Canadian economy showing resilience and corporate credit quality holding firm, this ETF is well-positioned to capitalize on the “new normal” of higher rates.

Risks? Yes—but They're Manageable

No investment is risk-free. CBND's -1.89% average annual return since inception reflects the headwinds of a prolonged low-rate environment. However, the fund's recent performance and dividend discipline suggest it has adapted to the rising-rate reality. Key risks include:
- Credit Downgrades: Though focused on investment-grade bonds, economic slowdowns could pressure issuers.
- Duration Risk: While shorter than government bonds, CBND's duration is still a factor if rates surge unexpectedly.

Mitigation strategies include its diversified portfolio and active management by Manulife Investment Management, which employs proprietary research to navigate credit cycles.

The Bottom Line: Act Now Before Yields Fade

The combination of predictable dividends, yield-rich corporate bonds, and strategic duration management makes CBND.TO a standout pick in 2025. With its May 30 record date looming, investors have a narrow window to lock in the CAD 0.0309 payout.

In a market where safety and yield are at odds, CBND offers both. Don't let this opportunity slip—it's a rare chance to turn rising rates into rising income.

Action Item: Buy CBND.TO before May 30 to secure the dividend. Monitor its duration exposure and benchmark performance to ensure alignment with your risk tolerance.

Investment decisions should consider personal financial goals and risk tolerance. Past performance does not guarantee future results.