10 Best Canadian Bank ETFs

10 Best Canadian Bank ETFs

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Introduction

This article covers the best Canadian Bank ETFs in Canada and discusses each of them.

Due to their stability, Canadian banks are among the most well-liked investments for Canadians.

Exchange traded funds, sometimes known as ETFs, are one of the many options to invest in Canadian banks. While you may invest in individual banks, not everyone should choose dividend stocks, and ETFs can help you make simpler investment selections.

Sadly, if you only include the six largest banks, there are more Canadian bank ETFs to choose from than Canadian bank stocks.

10 Best Canadian Bank ETFs

1. Horizons Equal Weight Canadian Banks ETF (TSE:HEWB)

Horizons provides one of Canada’s most affordable Canadian bank ETFs. The Solactive Equal Weight Canada Banks Index is followed by the equal-weight passive strategy known as HEWB (Total Return). Your contribution is distributed evenly among the six largest Canadian banks.

HEWB is a relatively substantial ETF in terms of assets under management but has a limited performance history. HEWB is offered at a significantly lower MER than comparable Canadian bank ETFs.

HEWB seeks to be as tax-efficient as feasible by minimizing taxable dividends as part of Horizons’ total return ETF offering. Investors wishing to increase their non-registered account’s exposure to Canadian banks will find this to be extremely helpful.

It is a reasonable evaluation of volatility that Horizons has given HEWB a medium risk rating.

For investors searching for an income stream, the ETF might not be appealing because it doesn’t offer a dividend. This is especially crucial because Canadian banks often command high dividend yields due to their steady income streams, which make them desirable investments.

HEWB is a fantastic option for a Canadian bank ETF especially if income is not a concern.

2. RBC Canadian Bank Yield Index ETF (TSE:RBNK)

RBC also provides an inexpensive Canadian bank ETF. In order to improve yield and prospective returns, different amounts are allotted to each of the six Canadian banks.

The Solactive Canada Bank Yield Index is tracked by the passive strategy called RBNK.

The ETF is a major ETF in terms of assets under management and has a medium-long performance history. RBNK’s MER is quite low when compared to other Canadian bank ETFs.

Investor dividends are made by RBNK once a month. Investors seeking a steady income stream may find its high dividend yield to be quite alluring.

RBC has rated RBNK as medium to high risk, which probably exaggerates the strategy’s level of risk. The majority of major brokerages view mature corporations like the big Canadian banks as medium risk and classify them as blue chip companies.

RBNK is not evenly weighted with respect to ZEB. In fact, the Canadian Imperial Bank of Commerce and Bank of Nova Scotia are the fund’s two largest holdings.

As the bank ETF seeks to increase dividend yield for investors, these two companies are now among the best paying Canadian banks.

This fund solely holds the Big 5 and National Bank, similar to the other pure bank ETFs on this list that have six holdings. The National Bank has the lowest allocation in this fund, which is noteworthy given that it is one of Canada’s best-performing banks.

This is probably because it performs better than expected and has a lower yield. This fund’s goal, as we have indicated, is to boost earnings.

RBC’s RBNK is a fantastic alternative to take into consideration if you’re seeking for anything more than an investment split equally amongst Canadian banks.

The fund’s current payout is 4.17%, while its annualized gains since inception in 2017 have been 7.18%. A $10,000 investment in RBNK would be worth about $14,100, to put things in perspective.

In comparison to something like ZEB, this fund has had a very poor return overall. This Canadian Bank ETF had costs of 0.33% in the past, however they have now increased while several other ETFs have decreased their own fees.

Although it is one of the less well-known and smaller bank ETFs on this list, it provides a lot of liquidity for Canadian investors seeking immediate exposure to Canada’s six best banks. Its assets under management are $247 million.

3. BMO Equal Weight Banks Index ETF (TSE:ZEB)

BMO provides the most affordable choice for an ETF representing Canadian banks. Canadian banks are all equally weighted in BMO’s ZEB ETF’s investments.

The six biggest financial institutions in Canada are what the BMO Equal Weight Banks Index ETF (TSX:ZEB) seeks to follow. That is indeed the whole ownership list for this Canadian bank ETF.

The Solactive Equal Weight Canada Banks Index is the benchmark that the ETF seeks to replicate in its ultimate goal. The index’s holdings are all present in the ETF, and they are distributed in exactly the same ratios. The ETF is a huge ETF in terms of assets under management and has a lengthy history of success.

ZEB now has the lowest MER when compared to other Canadian bank exchange traded funds. Remember that the ETF is also among our list’s “plainest” choices, effectively dividing your investment evenly among the main Canadian banks.

ZEB distributes money to investors once a month. It offers a great dividend yield, which appeals to income-seeking investors once more.

ZEB has a reasonable evaluation of volatility thanks to BMO’s medium risk rating.

If you’re searching for a straightforward Canadian bank ETF with superb features that gradually rebalances to equal weights, ZEB is a terrific choice to take into consideration.

National Bank of Canada and Royal Bank of Canada are its two largest holdings. It’s crucial to remember that this ETF has equal weight because there is little variation in the weighting of the holdings.

Currently, it has a about 18% allocation as its largest asset, and a 15.5% allocation as its lowest.

The ETF distributes 4% of its value. Investors who choose to purchase the ETF and reinvest the dividends over the past ten years have seen returns of almost 175%. This equates to a return of about 10.62% annually.

This bank ETF is the most straightforward and straightforward approach to invest in Canadian banks.

Previously, it was discouraged for Canadians to purchase ZEB back when the management fee was 0.55%. With only 6 holdings, it was simply too expensive. However, the fund has decreased its charge to merely 0.25%, making the banking ETF more appealing.

4. CI First Asset CanBanc Income Class (TSE:CIC)

CI First Asset CanBanc Income Class, which pursues a similar strategy to ZWB, seeks to mimic the performance of Canada’s largest financial institutions while also producing additional income via the selling of covered call options.

However, there are a few significant distinctions between this bank ETF and ZWB, so let’s start with those. First off, unlike the BMO Covered Call Canadian Bank ETF, this ETF’s holdings do not include any underlying ETFs.

The bank ETF also assigns a maximum amount of shares on which it can offer call options, which is 25 percent, and pays its dividend on a quarterly rather than a monthly basis. As a result, the fund is limited to selling covered calls for just 250 shares of the 1000 shares of Royal Bank of Canada it owns.

With just a 0.9% difference between each investment in the portfolio, this ETF also employs a more precise equal weighting method. The distribution to each of Canada’s six banks ranges from 16.1% to 17% overall.

The bank ETF from First Asset has a MER of 0.8%, which means you’ll pay $8 for every $1000 invested year. At the time of writing, its payout was in the mid 6% area. It’s one of the less effective ETFs on this list, with annualized returns in the high 7.94% area.

This is most likely caused by the fund’s more aggressive covered call character. It just hasn’t been able to benefit fully from the banking sector’s bull run. Therefore, it may be necessary for the banks to underperform over the next years for CIC to outperform.

5. Hamilton Canadian Bank Mean Reversion Index ETF (TSE:HCA)

An innovative Canadian bank approach is provided by Hamilton ETFs. HCA employs a mean reversion strategy, which thinks that all Canadian banks would perform similarly over time.

The ETF invests more in certain banks that are performing poorly over the near term and less in those that are performing better.

HCA is a passive ETF that follows the Solactive Canadian Bank Mean Reversion Index TR, despite the approach that is actually of the underlying index.

HCA has a slightly higher MER since investing in Canadian banks is more difficult. The ETF has a brief history and a sizable amount of assets under management.

According to many research cited on the Hamilton ETFs website, investing in Canadian banks using a mean reversion technique outperforms using equal weight and covered calls.

Investors will have to wait to find out if the outperformance can truly be realized because of HCA’s limited performance history.

The ETF offers a fantastic yield and distributes dividends on a regular basis. HCA is a well-rounded alternative to take into account for your portfolio despite the higher costs.

6. iShares Equal Weight Banc & Lifeco (TSE:CEW)

The iShares Equal Weight Banc & Lifeco ETF approaches the financial industry in a distinctive way. In addition to having equal weight positions across all of Canada’s Big 6 banks, it also includes some of the most well-known life insurance providers in the nation.

The fund now manages $180 million in assets, and among the insurers in its portfolio are well-known companies including Sun Life Financial, iA Financial, Manulife Financial, and Great-West Lifeco. The allocations in this ETF are rather straightforward given that the fund is equal weight. It has ten equities and intends to maintain a 10% position on each.

It is obvious that this will never be a precise science. The individual holdings will fluctuate along with the pricing. This means that the fund may diverge in the near run, but the portfolio management will simply rebalance as necessary.

The fund now returns just under 4%, and its management costs are 0.61%, so for every $1000 invested year, you will pay $6.10. Realistically, it is not that tough to maintain a ten-stock equal weight portfolio, therefore the charge is a little more than I’d want to see.

The inclusion of insurance and a monthly dividend is a plus, though. The decision of each investor as to whether or not that is worthwhile is up to them.

A monthly payment of $0.04167 per unit is what the fund seeks to pay out. The fund may begin paying out return of capital and capital gains in this kind of scenario if it is unable to satisfy its responsibilities on that front.

It’s crucial to keep in mind that if you own these ETFs in a taxable account, they are regarded substantially differently for tax purposes.

7. BMO Covered Call Canadian Banks ETF (TSE:ZWB)

The BMO Covered Call Canadian Bank ETF is the only bank ETF that Canadian investors need to consider if they want to receive a sizable payout.

The same stocks that were in our prior ETF ZEB are also in this Canadian bank ETF.

In actuality, ZEB is ZWB’s largest stake.

The main distinction is the fund’s ability to provide greater income for investors through the writing of covered call options. How do covered calls work? An extremely succinct explanation will be covered.

An example of an options contract is a “call,” and the “covered” part refers to an options strategy in which the investor owns the underlying stock. Call options will be sold by the investor (in this example, the fund) for the same number of shares (or fewer) that they now possess.

A call option commits you to selling the specified number of shares at the predetermined price if it is exercised, up to a predetermined amount.

You receive a premium for selling the contract, and if it expires, you eventually keep your shares and the premium. You sell the shares for the specified amount if the buyer decides to exercise the contract.

The safest approach to trade options is probably using covered call options, and a knowledgeable practitioner of the technique may reduce the volatility of the position as a whole. 

But covered call ETFs have a bad reputation for performing poorly during bull markets. The main reason for this is that rising stock prices hurt call option sellers, which explains why ZWB performs worse than ZEB.

But the fund provides a significantly larger payout in the 7% area for investors who are only interested in getting the biggest income possible and do not seek to optimize overall profits.

ZWB is not a bad banking ETF, but it’s important to understand what you’re getting and determine whether it suits your investment style before you buy. Choose ZWB if you require passive revenue. Consider going to ZEB if you’re searching for overall results

By employing a covered call strategy inside their ZWB ETF, BMO offers a novel method of investing in Canadian banks. Covered calls entail selling call options in order to gradually boost revenue. An active manager oversees the ETF.

There is undoubtedly more labor required in managing the fund when using a covered call strategy, as is the case with the bank ETF. As a result, costs are substantially greater than ZEB’s 0.65%.

In terms of AUM, the ETF is enormous and has a long history of successful performance.

ZWB’s MER is considerably higher when compared to the MERs of the other Canadian bank ETFs on our list. This is a result of the added administration and skill required by the active covered call strategy.

ZWB distributes money to investors once a month. It offers a tremendous dividend yield, which is great for those seeking high cash flows.

ZWB has been given a decent evaluation of volatility by BMO, who gave it a medium risk rating. In fact, using a covered call strategy over time can assist reduce volatility.

ZWB is a fantastic choice if you want to invest in Canadian banks while earning the most return possible from your ETF.

8. iShares Canadian Financial Monthly Income ETF (TSE:FIE)

For Canadians wishing to gain exposure to the whole financial industry through ordinary stocks, preferred shares, and bonds in addition to the major Canadian banks, iShares offers a very unusual solution.

The preferred shares and bonds that make up one-third of this fund. So, why, you might wonder, are we listing it on a top Canadian bank ETF list? That’s because the large banks are the source of a sizable portion of the corporate bonds and preferred shares in this portfolio.

One of the largest funds on the list, with assets under management of just over $875 million, the fund’s top five holdings in terms of common stock include all of Canada’s major banks with the exception of the Bank of Nova Scotia, which is just outside the top 10.

This portfolio achieves two goals thanks to its preferred share and bond structure. One benefit is that it raises the yield because preferred shares often pay out more money.

Additionally, it reduces volatility because both of these instruments are frequently less volatile than ordinary equities.

With a management expense ratio of 0.81%, the fund has the highest one on this list. However, it also offers the highest yield on our list, at 7%, so some people could consider the extra costs to be worthwhile.

Just be aware that this fund has suffered in terms of overall performance. If we contrast it with the other items on the list, at least. Despite offering a 7% income, it has only been able to generate returns of 7.4% annually since its launch in 2011.

This is probably because bonds and preferred stock make up a sizable portion of the fund. Although you gain a larger income and stronger downside protection, capital appreciation will likely be inadequate.

9. CI Canadian Banks Covered Call Income Class ETF (TSE:CIC)

Similar to BMO, CI also provided a covered call strategy that is limited to Canadian banks in Canada. The covered calls contribute to a long-term improvement in the revenue of CIC, which is carefully controlled.

With respect to assets under management, the ETF has a lengthy history of strong performance.

CIC has an extremely high MER when compared to the other Canadian bank ETFs on this list. This is just another result of the added administration and knowledge required by the active covered call strategy.

CIC distributes money to investors once every three months. It has a fantastic dividend yield, which will appeal to investors who are interested in making an income.

A realistic estimate of CIC’s volatility is provided by CI’s medium risk rating. The covered call technique can assist in a little amount of downside risk reduction.

CIC is yet another excellent choice to take into consideration as a Canadian bank covered call strategy.

10. Evolve Canadian Banks and Lifecos Enhanced Yield Index Fund (TSE:BANK)

The BANK ETF from Evolve invests in many life insurance businesses in addition to the big Canadian banks. The Solactive Canadian Core Financials Equal Weight Index performance is what BANK aspires to deliver at a 1.25 times multiple.

Leverage is used by BANK to get up to 125% exposure to Canadian key financial firms. Leverage dramatically raises the risk associated with most techniques.

The ETF has a relatively brief performance history and very little money under management.

Given how recently the fund was established, it’s critical to keep an eye on its performance and AUM expansion over time. If the ETF is unable to raise more money in the future, the size of the fund may put it at danger of closing down early.

Given that the strategy is so young, BANK has an unknown MER and an above-average management fee. Taxes will also be taken into account by the MER.

BANK presently offers an amazing yield of approximately 11% and distributes money on a regular basis.

The ETF has been given a decent risk rating by Evolve of medium to high. As we said previously, using leverage raises the danger.

Evolve’s BANK ETF can be a great fit for your portfolio if you want to increase your income stream while taking on more risk.

Final Thoughts

Canadian banks, which are regarded as the cornerstone of our financial system, demonstrated their stability and resiliency in 2008 throughout the global crisis.

If you purchase equities, there’s a good probability that your portfolio includes some banks unless you began off investing in cryptocurrencies. Since banks are prominent on the TSX, if you invest in index funds, you have banks.

With a respectable yield, you receive a secure and increasing investment.

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Adam is an internationally recognised author on financial matters, with over 760.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.