Canadian Pension Funds' High-Yield ETF Preference in 2024

Based on my research, I can now provide a comprehensive analysis of what Canadian pension funds’ growing preference for high-yield corporate debt ETFs reveals about their 2024 risk appetite.

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The Ontario Teachers’ Pension Plan (OTPP)‘s Q4 2024 investment moves provide a window into Canadian pension funds’ evolving risk appetite. According to portfolio holdings data, OTPP accumulated positions in the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) while making selective strategic moves in equities, including a new $93 million position in NVIDIA Corporation (NVDA) and holdings in Eli Lilly (LLY) [1][2].

Canadian pension funds’ increased allocation to high-yield corporate debt ETFs reflects a deliberate yield-enhancement strategy. With Canadian government bonds offering historically low yields, pension funds—whose liabilities are long-term in nature—have been compelled to accept additional credit risk to meet their return requirements [3]. The high-yield corporate bond market offered yields in the 5-6% range in 2024, significantly above investment-grade alternatives [4].

The tightening of Canadian corporate bond spreads throughout 2024 indicated a general improvement in risk appetite among institutional investors, including pension funds [3]. This aligns with OTPP’s strong performance, posting a 9.4% net return for 2024, growing assets to $266.3 billion [5].

The use of high-yield corporate debt ETFs like HYG represents a tactical allocation rather than a fundamental shift in investment philosophy. ETFs provide:

• Liquidity
  : Easy entry and exit compared to direct bond holdings
• Diversification
  : Exposure to a broad basket of high-yield issuers
• Transparency
  : Daily pricing and holdings disclosure
• Cost-efficiency
  : Lower transaction costs compared to active management

OTPP’s simultaneous accumulation of tech exposure (Nvidia) while maintaining high-yield bond positions demonstrates a nuanced approach to risk management. This balanced strategy allows pension funds to:

• Capture growth opportunities in secular themes (AI/technology)
• Maintain income generation through fixed-income allocation
• Manage overall portfolio volatility through asset diversification

The decision to increase high-yield exposure signals confidence in the credit cycle. Despite concerns about economic headwinds, Canadian pension funds demonstrated faith in corporate issuers’ ability to avoid widespread defaults. The high-yield market returned 8.04% in 2024, driven by both price appreciation (1.3%) and coupon returns (6.7%) [6].

The shift toward high-yield corporate debt ETFs reflects several strategic considerations:

Factor	Impact on Risk Appetite
Liabilities	Longer-duration liabilities require yield-matching
Competition	Pressure to outperform benchmarks drives yield-seeking
Market conditions	Tight spreads suggest benign credit environment
Diversification needs	ETF allocation provides liquid income exposure

Canadian pension funds’ growing preference for high-yield corporate debt ETFs in 2024 reveals a

driven by:

1. Yield requirements
   : The need to meet long-term liability obligations in a low-rate environment
2. Confidence in credit markets
   : Belief in continued economic expansion and low default rates
3. Strategic diversification
   : Using ETFs as efficient tools for income generation
4. Balanced risk management
   : Combining higher-yield fixed income with selective equity exposure

This trend suggests Canadian pension funds entered 2024 with a

, willing to accept additional credit risk to enhance returns while maintaining diversified portfolios. The Q4 moves by OTPP exemplify this balanced approach—seeking yield through high-yield bonds while maintaining strategic equity positions in growth sectors like technology.

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[1] QuiverQuant - “Fund Update: New $93.0M NVDA stock position opened by Ontario Teachers Pension Plan Board” (https://www.quiverquant.com/news/Fund+Update%3A+New+%2493.0M+%24NVDA+stock+position+opened+by+ONTARIO+TEACHERS+PENSION+PLAN+BOARD)

[2] StockZoa - “Ontario Teachers’ Pension Plan Board Portfolio Holdings” (https://stockzoa.com/fund/ontario-teachers-pension-plan-board/)

[3] Benefits Canada - “Canadian equities, fixed income to deliver stable performance in 2025” (https://www.benefitscanada.com/news/cir-news-news/canadian-equities-fixed-income-to-deliver-stable-performance-in-2025-amid-potential-economic-headwinds-report/)

[4] RSM US - “Market Minute: Increased risk appetite for high-yield bonds” (https://realeconomy.rsmus.com/market-minute-increased-risk-appetite-for-high-yield-bonds/)

[5] MarketsGroup - “Ontario Teachers’ posts net return of 9.4% for 2024” (https://www.marketsgroup.org/news/ontario-teachersposts-net-return-of-9-4percent-for-2024-grows-assets-to-266-3bn-dollars)

[6] Columbia Threadneedle - “2024 U.S. high-yield year in review” (https://www.columbiathreadneedleus.com/institutional/insights/latest-insights/2024-us-high-yield-year-in-review)