The Canadian banking industry is robust, featuring established corporations that pay healthy dividends. Big Canadian bank stocks have been reliable long-term investments, enhancing investor wealth and providing consistent income. For those who prefer not to pick individual stocks, investing in the Big Six Canadian banks through Canadian bank exchange traded funds (ETFs) is a straightforward option.
Canadian banks have demonstrated resilience, notably during the 2008 financial crisis when they maintained their dividends while many global counterparts did not. Thirteen years later, after a two-year pause caused by the COVID-19 pandemic’s economic impact, Canada’s top banks resumed increasing dividend payouts.
What is the Best Bank ETF in Canada?
- CEW: iShares Equal Weight Banc & Lifeco ETF Common Class
- HXF: Global X S&P/TSX Capped Financials Index Corporate Class ETF
- HEWB: Global X Equal Weight Canadian Banks Index Corporate Class ETF
- XFN: iShares S&P/TSX Capped Financials Index ETF
- ZEB: BMO Equal Weight Banks Index ETF
- RBNK: RBC Canadian Bank Yield Index ETF
- BNC: Purpose Canadian Financial Income Fund Series ETF
- FIE: iShares Canadian Financial Monthly Income ETF Common Class
- CIC: CI Canadian Banks Covered Call Income Class ETF
- ZWB: BMO Covered Call Canadian Banks ETF
| ETF | Name | MER | 5Y |
|---|---|---|---|
| CEW | iShares Equal Weight Banc & Lifeco ETF Common Class | 0.61% | 9.26% |
| FIE | iShares Canadian Financial Monthly Income ETF Common Class | 0.80% | 6.71% |
| XFN | iShares S&P/TSX Capped Financials Index ETF | 0.61% | 8.12% |
| ZEB | BMO Equal Weight Banks Index ETF | 0.28% | 8.07% |
| ZWB | BMO Covered Call Canadian Banks ETF | 0.71% | 5.25% |
| CIC | CI Canadian Banks Covered Call Income Class ETF | 0.82% | 5.75% |
| HEWB | Global X Equal Weight Canadian Banks Index Corporate Class ETF | 0.28% | 8.24% |
| HXF | Global X S&P/TSX Capped Financials Index Corporate Class ETF | 0.28% | 8.51% |
| BNC | Purpose Canadian Financial Income Fund Series ETF | 0.68% | 6.86% |
| RBNK | RBC Canadian Bank Yield Index ETF | 0.32% | 7.68% |
10. BMO Covered Call Canadian Banks ETF
The BMO Covered Call Canadian Banks ETF (ZWB) seeks to provide exposure to the performance of a portfolio of Canadian banks to generate income and to provide long-term capital appreciation while mitigating downside risk through the use of covered call options and is currently invested in the BMO Equal Weight Banks Index ETF. The BMO ETFs sell out-of-the-money (OTM) call options on 50% of the stocks, which cap the return of the written positions at the option strike price until the option expires. For BMO ETFs, option expiries are generally 1 to 2 months.
9. CI Canadian Banks Covered Call Income Class ETF
CI Canadian Banks Covered Call Income Class ETF (CIC) has a covered call option strategy that tends to be suitable for conservative investors who want to generate attractive income while still participating in equity markets. However, individuals writing calls can find it time-consuming and complex. CI Covered Call ETFs offer investors a convenient way to access professionally managed covered call strategies. CI Covered Call ETF strategies generally consist of an equally weighted portfolio of companies targeting a sector or segment of the market while writing monthly at-the-money call options on approximately 25% of the portfolio.
8. iShares Canadian Financial Monthly Income ETF
The iShares Canadian Financial Monthly Income ETF Common Class (FIE) seeks to maximize total return for investors, consisting of distributions and capital appreciation and to provide investors with a stable stream of monthly cash distributions of $0.05 per unit. Currently, the ETF is paying monthly cash distributions of $0.04 per unit. BlackRock will monitor the potential long-term effect of paying cash distributions that consist of a return of capital on FIE’s ability to achieve its investment objective of paying stable monthly cash distributions.
BlackRock may reduce FIE’s monthly cash distribution, if it determines that such reduction is in the best interests of FIE. BlackRock currently estimates that a monthly cash distribution of $0.04 per Unit can generally be maintained provided that FIE’s Net Asset Value per Unit remains above $6.00. The ETF’s net assets, together with borrowings under its loan facility, are invested in a portfolio consisting primarily of common shares, preferred shares, corporate bonds and income trust units of issuers in the Canadian financial sector.
7. Purpose Canadian Financial Income Fund
The Purpose Canadian Financial Income Fund Series ETF (BNC) seeks to provide shareholders with (i) long-term capital appreciation through investment in a portfolio of Canadian Banks and Canadian Insurance Companies and (ii) monthly distributions. To achieve its investment objectives, the fund will invest primarily in equity securities of Canadian Banks (up to 70% on an equal weighted basis) and to a lesser extent Canadian Insurance Companies (up to 30% on an equal weighted basis). The fund will write covered call options from time to time in respect of the securities it holds to (i) enhance the fund’s total returns, (ii) enhance the dividend yield of the portfolio securities and (iii) lower the overall volatility of the fund’s portfolio. The charts below provide you with a snapshot of the ETF’s investments on August 31, 2022. The ETF’s investments will change.
6. RBC Canadian Bank Yield Index ETF
RBC Canadian Bank Yield Index ETF (RBNK) seeks to replicate, to the extent possible and before fees and expenses, the performance of a portfolio of Canadian bank stocks. Currently, the RBC Canadian Bank Yield Index ETF seeks to track the Solactive Canada Bank Yield Index. The investment strategy of the RBC Canadian Bank Yield Index ETF is to invest in and hold the constituent securities of the Solactive Canada Bank Yield Index in substantially the same proportion as they are reflected in the Solactive Canada Bank Yield Index.
- The unique stock weighting methodology is designed to provide enhanced dividend yield and return potential
- Simple and efficient way to invest in the Canadian banks
- Attractive source of tax-efficient income – dividends are more tax efficient than regular income
- Canadian banks have a history of steady dividend growth
5. BMO Equal Weight Banks Index ETF
The BMO Equal Weight Banks Index ETF (ZEB) seeks to replicate, to the extent possible, the performance of an equal-weight diversified Canadian bank index, net of expenses. Currently, the ETF seeks to replicate the performance of the Solactive Equal Weight Canada Banks Index (the “Index”). The Index includes Canadian exchange-listed securities in the diversified bank industry. Constituents are subject to minimum market capitalization and liquidity screens. In addition, each security is allocated an equal weight rather than a market capitalization weight.
4. iShares S&P/TSX Capped Financials Index ETF
The iShares S&P/TSX Capped Financials Index ETF (XFN) seeks to provide long-term capital growth by replicating, to the extent possible, the performance of the S&P/TSX Capped Financials Index. Under normal market conditions, the ETF will primarily invest in equity securities issued by Canadian issuers participating in the financial sector. The Index is comprised of constituents of the S&P/TSX Composite Index that are assigned to the following GICS Sector: Financials (40). Individual constituents are capped at 25% weight.
3. Global X Equal Weight Canadian Banks Index Corporate Class ETF
Global X Equal Weight Canadian Banks Index Corporate Class ETF (HEWB) seeks to replicate, to the extent possible, the performance of the Solactive Equal Weight Canada Banks Index (Total Return), net of expenses. The Solactive Equal Weight Canada Banks Index (Total Return) is an equal weight index of equity securities of diversified Canadian banks. HEWB offers investors exposure to Canada’s six largest banks, commonly referred to as the “Big Six” including Royal Bank of Canada (RBC), Toronto-Dominion Bank (TD), Bank of Nova Scotia (Scotiabank); Bank of Montreal (BMO), Canadian Imperial Bank of Commerce (CIBC) and National Bank of Canada (National Bank). By allocating an equal weight to each security, HEWB allows investors to diversify their exposure within the banking sector, mitigating concentration risk associated with individual bank performance. Part of the Global X Total Return Index family of ETFs, HEWB’s usage of a total return swap contract to replicate index performance typically increases tax efficiency. Further, HEWB is not expected to make taxable distributions, making it potentially advantageous for taxable accounts.
2. Global X S&P/TSX Capped Financials Index Corporate Class ETF
Global X S&P/TSX Capped Financials Index Corporate Class ETF (HXF) seeks to replicate, to the extent possible, the performance of the S&P/TSX Capped Financials Index (Total Return), net of expenses. The S&P/TSX Capped Financials Index is designed to measure the performance of Canadian financial sector equity securities included in the S&P/TSX Composite Index. The Relative Weight of any single index Constituent Security is capped. HXF provides investors with targeted exposure to the Canadian financials sector by tracking the performance of the S&P/TSX Capped Financials Index, where the relative weight of any constituent issuer is capped at 25%. HXF allows investors to strategically allocate their portfolios to the financial sector, potentially capitalizing on opportunities for growth and income within this specific segment of the Canadian equity market. Part of the Global X Total Return Index family of ETFs, HXF’s usage of a total return swap contract to replicate index performance typically increases tax efficiency. Further, HXF is not expected to make taxable distributions, making it potentially advantageous for taxable accounts.
1. iShares Equal Weight Banc & Lifeco ETF
The iShares Equal Weight Banc & Lifeco ETF (CEW) seeks to provide investors with a diversified, equal-weighted investment in a portfolio of common shares of the largest Canadian banks and Canadian life insurance companies. The ETF is rebalanced quarterly to adjust for changes in the market value of investments and to reflect the impact of a merger, acquisition or other significant corporate action affecting the issuers in the portfolio. The ETF seeks to provide investors with monthly cash distributions targeted to be $0.04167 per unit.
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| Advice | InvestCAN | InvestRESP | InvestUSA | RetireCAN | RetireMGN |
| $500.00 CAD $400.00 USD | $99.99 CAD | $79.99 USD | $99.99 CAD | $12.99 CAD $9.99 USD |
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