Searching for the top Canadian bank ETFs is overwhelming. With yields over 5% and monthly dividends, bank funds seem appealing. But how do you decide which one to buy? Navigating between new entrants and established players is frustrating. You don’t want to miss out on bigger payouts or higher returns. But at the same time, more complexity brings additional risks.
We’ve created this guide to demystify the best Canadian bank ETFs. It compares all the critical options across metrics like dividend yield, fees, historical returns and risks. You’ll discover which fund best aligns with your investing strategy and income needs.
By the end, you’ll have the knowledge to invest confidently in the ideal bank ETFs for your portfolio. Whether you prioritize monthly income, dividend growth or sector diversification, you’ll unlock the optimal choices.
Canadian Bank ETFs At A Glance
| Name (Ticker) | Objective | Dividend Yield | 1-Yr Return | Assets Under Management | Management Expense Ratio |
| BMO Covered Call Canadian Banks ETF (ZWB) | Generate income by selling covered calls big six banks | 7.76% | -6.55% | $2.98 billion | 0.71% |
| Hamilton Enhanced Canadian Bank ETF (HCAL) | 25% leverage on big six banks | 8.31% | -11.26% | $422.06 million | 0.65% |
| RBC Canadian Bank Yield Index ETF (RBNK) | Big six banks weighted by dividend yield | 5.34% | -6.9% | $232.6 million | 0.32% |
| TD Canadian Bank Dividend Index ETF (TBNK) | Bix six banks weighted by dividend growth rates | 4.95% | N/A | $20.34 million | 0.27% |
| iShares S&P/TSX Capped Financials ETF (XFN) | Exposure beyond big six banks to broader financial sector | 4.34% | -0.90% | $1.34 billion | 0.61% |
BMO Covered Call Canadian Banks ETF (Ticker: ZWB)
- Assets Under Management (AUM): $2.98 Billion
- Inception Date: January 2011
- Expense Ratio (MER): 0.71%
- Dividend Yield: 7.76%
- Distribution Frequency: Monthly
| 1-Year | 3-Years | 5-Years | |
| Annualized Performance* | -6.55% | 5.82% | 4.63% |
The BMO Covered Call Canadian Banks ETF is the most popular bank ETF. This unique choice generates additional income by selling covered calls on Canadian banks.
You’ll receive a higher distribution yield, but your upside is limited. This is highlighted by the long-term performance lagging behind peers. Furthermore, the strategy doesn’t mitigate any downside risk. As such, this ETF is best if you prioritize income over potential appreciation to Canadian bank stocks.
The fund currently offers an annualized distribution yield of 7.76%, with monthly distributions. Although the MER is higher at 0.71%, performance has been steady, with an annualized 3-year return of 5.82%. The fund had substantial net assets of $2.98 billion, indicating its popularity.
The portfolio targets the big six banks, attempting equal weighting. Investors like ZWB for its solid performance history, regular income generation through dividends, and the stability offered by the Canadian banking sector. The covered call strategy is appreciated for its potential to generate income, especially in sideways markets.
| Pros | Cons |
| High distribution yield from covered call strategy | Capped upside potential limits growth in strong economies |
| Great for sideways and unpredictable markets | Higher MER (0.72%) |
| Monthly distributions |
Hamilton Enhanced Canadian Bank ETF (Ticker: HCAL)
- AUM: $422.06 Million
- Inception Date: October 2020
- Expense Ratio (MER): 0.65%
- Dividend Yield: 8.31%
- Distribution Frequency: Monthly
| 1-Year | 3-Years | 5-Years | |
| Annualized Performance* | -11.26% | 7.54% | N/A |
The Hamilton Enhanced Canadian Bank ETF maximizes income by increasing risk. HCAL deploys 25% leverage to an equal weighting of Canadian banks. However, leverage is a double-edged sword. While it increases returns, a drop in the stock price amplifies losses. This is demonstrated by the significant one-year drop, eclipsing comparable ETFs.
As such, this fund is best for investors prioritizing enhanced returns at the expense of risk. Unlike BMO’s Covered Call ETF, no ceilings cap your upside, and you’ll earn a higher yield. However, rising interest rates decrease the returns offered by leverage. HCAL is also a useful tool for investments in a registered account, as you can’t individually use margin.
The 8%+ yield is a major draw for income-oriented investors. The MER is higher but reasonable, given the complexity of the underlying strategy. Furthermore, the AUM highlights the fund’s popularity. Overall, HCAL is well-suited for investors seeking higher yields and comfortable with the additional risks posed by leverage.
| Pros | Cons |
| Highest Dividend Yield | Leverage magnifies losses in down markets |
| Leverage amplifies returns | Higher, but fair MER |
| Monthly income distributions | Rising interest rates make the leverage strategy less attractive due to the increased costs of borrowing |
| Popular ETF |
RBC Canadian Bank Yield Index ETF (Ticker: RBNK)
- AUM: $232.6 Million
- Inception Date: October 2017
- Expense Ratio (MER): 0.32%
- Dividend Yield: 5.34%
- Distribution Frequency: Monthly
| 1-Year | 3-Years | 5-Years | |
| Annualized Performance* | -6.9% | 8.2% | 6.7% |
The RBC Canadian Bank Yield Index ETF focuses directly on the big six banks with a spin. Rather than equal weighting, its dividend-based weighting methodology tilts the portfolio towards higher-yielding banks. As such, this fund is tailored to the investor who wants Canadian bank dividends.
Unlike the bank ETFs discussed above, RBNK has no fancy tricks. It simply prioritizes weighting banks with higher dividend yields. This currently manifests as CIBC and Scotiabank taking the lion’s share allocation. However, this means the fund’s performance is more tied to these two banks. As such, the fund has more company-specific risk.
With a relatively low 0.32% MER, RBNK offers an efficient, low-cost way to gain targeted exposure to Canadian bank dividends. Its yield, though lower than others, optimizes without complexity. Performance has also been strong, with an annualized 3-year return of 8.2%.
Overall, RBNK presents an opportunity to optimize Canadian bank dividends. However, its Achilles’ heel is increased company-specific risk, as most of the portfolio is allocated to a small portion of the – already minimal – big six banks.
| Pros | Cons |
| Simple method to understand | Less diversification |
| Lower management fee (0.32%) | |
| Monthly distributions |
TD Canadian Bank Dividend Index ETF (Ticker: TBNK)
- AUM: $20.34 Million
- Inception Date: February 2023
- Expense Ratio (MER): 0.27%
- Dividend Yield: 4.95%
- Distribution Frequency: Monthly
| YTD | 3-Years | 5-Years | |
| Annualized Performance* | -6.18% | N/A | N/A |
The TD Canadian Bank Dividend Index ETF is a new entrant, having launched on February 23, 2023. TBNK targets the big six banks with an emphasis on dividend growth. This means increased weighting to banks that have raised their dividend more frequently. Currently, this constitutes BMO and National Bank.
TBNK is backward-looking, which can result in less income. The primary holdings can have a lower yield but higher growth. In contrast, RBNK ranks holdings based on their current dividend yield. However, TBNK’s approach can result in more appreciation as companies with dividend growth tend to see stock price increases.
TBNK is a balance between income and appreciation, with a slight emphasis on the ladder. With no historical track record yet, it’s essentially an untested strategy. Its low 0.27% MER is compelling but proceed cautiously until the performance and AUM cement this bank ETF.
| Pros | Cons |
| More potential for growth | New and unproven ETF |
| Monthly distributions | Limited diversification |
| Low MER | Lower yield |
- AUM: $1.34 Billion
- Inception Date: March 2001
- Expense Ratio (MER): 0.61%
- Dividend Yield: 4.34%
- Distribution Frequency: Monthly
| 1-Year | 3-Years | 5-Years | |
| Annualized Performance* | -0.90 | 9.30% | 7.74% |
The iShares Canadian Bank ETF captures the broader Canadian financial sector beyond the big banks. The fund’s 27 holdings include insurance, wealth management firms, and other financial services. XFN is best for investors who want enhanced exposure to Canadian finance.
The fund aligns holdings to the S&P/TSX Capped Financials Index. This weighs companies based on market cap, with a 25% limit. Since larger companies receive more allocation, RBC and TD are the primary holdings. However, their allocation adjusts dynamically if their market cap drops or competing firms get larger.
With monthly income distributions and a long operating history, XFN has a track record of delivering, with a 9.30% annualized three-year return. Furthermore, the 4.34% dividend yield is competitive, given the diversification. XFN suits investors seeking diversified income and capital growth within the Canadian financial sector.
| Pros | Cons |
| Most diversified option | Moderate MER (0.61%) |
| Long track record with proven AUM | Lower yield |
| Monthly distributions |
Pros Of Canadian Bank ETFs
- Strong yields with growth upside: The dividend yield aligns with GIC interest rates, with the added potential to earn more if the bank stocks increase.
- Monthly distributions: Investors receive consistent income, which they can use to reinvest and grow faster.
- ETF structure: Many online brokerages offer free ETF purchases, while stocks have a fee. This lets smaller investors avoid brokerage fees.
- Stable sector: Canadian banks are heavily regulated and some of the safest in the world. They held up much better than American banks during the 2008 recession.
Cons Of Canadian Bank ETFs
- Management expense ratio (MER): The fund deducts management fees from your return. This leads some investors to prefer buying the individual stocks themselves.
- Lack of diversification: Many Canadian bank ETFs have a significant allocation to the big six Canadian banks, which increases concentration risk. If any of these banks face financial difficulties, it can significantly impact the ETF’s performance.
- Competition from fintech: The rise of challenger banks poses a potential threat to traditional institutions. Current government policies favouring open banking invite disruption in the industry.
- Regulatory and legal risks: The banking industry is highly regulated, and changes in regulations or legal issues can affect the profitability and operations of Canadian banks.
Bottom Line
Overall, Canadian bank ETFs offer reasonable yield with growth upside. However, the funds tend to lack diversification, given the consolidation of our banking industry. Since most funds only hold six banks, investing in bank ETFs as part of a broader portfolio is best.
Choosing the best Canadian bank ETF depends on your desire for income, growth, or diversification. Options like ZWB and HCAL produce higher yields for income-focused buyers, while TBNK focuses on dividend growth potential. XFN provides broad exposure to the financial sector.
