There are lots of easy, low-risk ways to invest these days. Plus, many of the investment funds you can get through Canadian banks are known for having strong performances and appealing dividend yields. For instance, one of the simplest and most common ways to expand an investment portfolio is with ETFs.
What Are ETFs?
An exchange-traded fund (ETF) is a collection of individual stocks or government and corporate bonds you can purchase through your bank or trading platform for a single price. ETFs are similar to mutual funds, only you’re allowed to buy and sell them any time during a regular trading day like a stock.
Additionally, most ETFs aren’t managed by humans like mutual funds are. Instead, they have an algorithm that monitors a full economic index or sector, such as the US bond market or the popular S&P 500. Because of that, ETFs are often referred to as “passive” investments, whereas mutual funds are “actively managed” (with some exceptions).
Best Canadian Bank ETFs
Although you can buy individual shares/stocks of your bank with a discount brokerage account, one of the main benefits of ETFs is that they can save you the trouble of rebalancing or regularly investing small amounts into your bank stocks.
Here are some of the best Canadian Bank ETFs that come with such benefits in 2022:
BMO Equal Weight Bank Index ETF
The BMO Equal Weight Bank Index ETF (ZEB) is designed to track the performance of the Solactive Equal Weight Canada Banks Index and is presently invested in all six of the country’s largest banks (with 0.24% cash). The banks invested in the ZEB ETF is almost equally distributed, with TD bank having the largest holding at 17.09% and the lightest by the Bank of Nova Scotia at 16.01%.
Features of this Canadian Bank ETF:
- Ticker – ZEB
- Assets Under Management – $2.05 billion
- Number of Holdings – 7
BMO Covered Call Canadian Banks ETF
Like the ZEB, the BMO Covered Call Canadian Banks ETF holds shares of Canada’s big-six banks. It uses covered call options to earn premiums, reduce portfolio volatility and increase yield whenever possible. The ZWB is made of 39 holdings, with the ZEB comprising one-fourth (24.66%) of its total weight and the rest distributed among the banks. It also has a good dividend yield but doesn’t offer much when it comes to capital growth. This makes the ZWB a better choice if you’re just looking for dividends. The stock is rebalanced twice a year.
Features of this Canadian Bank ETF:
- Ticker – ZWB
- Assets Under Management – $2.24 billion
- Number of Holdings – 34
CI Canadian Banks Income Class ETF/CI First Asset CanBanc Income Bank ETF (CIC)
This ETF was created by CI First Asset in August 2010. Unlike other Canadian investment funds, it pays dividends quarterly rather than monthly. The CIC invests in Canada’s 6 largest banks too and is meant to focus on capital appreciation. While the National Bank of Canada is still its lead holder, the CIC’s holdings are more equally distributed than some other Canadian Bank ETFs.
Features of this Canadian Bank ETF:
- Ticker – CIC
- Assets Under Management – $199.93 million
- Number of Holdings – 12
RBC Canadian Bank Yield ETF
Launched by the Royal Bank of Canada in October 2017, the RBC Canadian Bank Yield ETF includes the country’s big banks but doesn’t offer equal weightage. Instead, it seeks to replicate the performance of the Canadian bank stocks and relies mainly on CIBC at 24.6% and BNS at 24.5%. The RBC Canadian Bank Yield ETF also closely tracks the Solactive Canada Bank Yield Index, which it does by holding the same securities, at the same proportions.
According to RBC, the ETF’s special stock weighting system is designed to provide significant dividend yield and possibility of return. Despite the RBNK offering a better dividend yield than many other Canadian Bank ETFs, its potential for capital growth may not be sufficient for some investors, since it’s a relatively new fund.
Features of this Canadian Bank ETF:
- Ticker – RBNK
- Assets Under Management – $158.67 million
- Number of Holdings – 6
Check out what are the best types of investments in Canada.
Hamilton Enhanced Canadian Bank ETF (HCAL)
With an inception date of October 14, 2020, the Hamilton Enhanced Canadian Bank ETF (HCAL) is the newest Canadian Bank ETF on our list. It’s featured on the Toronto Stock Exchange and invests in all six of our largest banks.
The HCAL uses an index-based, mean-reversion strategy to hold bank shares, with 25% cash leverage to enhance its dividend yield. The HCAL is a great option if you want enhanced growth potential and a better monthly income.
Features of this Canadian Bank ETF:
- Ticker – HCAL
- Assets Under Management – $375.8 million
- Number of Holdings – 6
iShares S&P/TSX Capped Financials Index ETF
The iShares S&P/TSX Capped Financials Index (from BlackRock) offers investors some exposure to a variety of Canadian financial organizations, like banks and insurance companies. About two-thirds of this ETF is made up of Canadian big banks. As such, the XFN provides a bit more diversification than other ETFs, because it’s not focused solely on Canada’s big-six banks.
The iShares S&P/TSX Capped Financials Index aims to provide long-term capital growth by mimicking the S&P/TSX Capped Financials Index’s performance. It also has a lower dividend yield but a potential capital growth that’s similar to other iShares ETFs, with a longer track record, having been created in March 2001.
Features of this Canadian Bank ETF:
- Ticker – XFN
- Assets Under Management – $1.68 billion
- Number of Holdings – 28
iShares Equal Weight Banc & Lifeco ETF
Since this ETF is also offered by BlackRock’s iShares, investors can access a diverse portfolio of stock holdings from life insurance companies and big banks. It was created in February 2008 and pays monthly dividends.
About 60% of the CEW is made of Canada’s largest banks, with 38% distributed across various insurance companies. Although it comes with a reasonable dividend yield, there seems to be more possibility of growth here, which makes CEW a good choice for anyone seeking both benefits.
Features of this Canadian Bank ETF:
- Ticker – CEW
- Assets Under Management – $247.60 million
- Number of Holdings – 10
Before adding this fund to your portfolio, keep in mind that since CEW is composed of more than just banks, it may have higher volatility than other Canadian bank ETFs. Nonetheless, this allows CEW to continue growing, even when the banks aren’t.
iShares Canadian Financial Monthly Income ETF
Produced by BlackRock in April of 2010, the iShares Canadian Financial Monthly Income ETF is a medium-risk fund that aims to provide consistent cash distributions on a monthly basis and maximize total returns. The ETF provides exposure to the Financial Services sector in Canada and its portfolio is mainly comprised of preferred and common shares from companies in this sector. It also includes corporate bonds and income trust units.
Currently, the banking sector makes up 49.64% of this fund, with 22.24% going to insurance companies and 8.53% to diversified financial holdings. FIE also has a better dividend yield than most of the other ETFs on this list as you can earn dividends on a monthly basis.
Features of this Canadian Bank ETF:
- Ticker – FIE
- Assets Under Management – $968.14 million
- Number of Holdings – 27
Additional Reading
Benefits Of Canadian Bank ETFs
Basically, ETFs are a fast, convenient way to buy reasonably priced shares of Canada’s biggest banks. Although a certain level of risk is involved (particularly if you don’t diversify your portfolio), there are several benefits to Canadian Bank ETFs, like:
- Affordable Investment Costs – Since these ETFs are bundle deals, you can invest in Canada’s banks for lower management fees than you might see with singular investments (i.e. you’re paying commission on 1 trade instead of 6).
- Safer Investment Amounts – If you’re looking for less risk, most Canadian bank ETFs allow you to earn dividends by investing small amounts. Plus, reinvesting your dividends is simpler when you don’t have to buy individual shares.
- Monthly Dividend Yields – While some bank investment funds pay dividends on a quarterly basis, most of the Canadian bank ETFs above (apart from the CIC) provide monthly yields, which most investors prefer because it enhances returns.
Canadian Bank ETFs - FAQs
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Bottom Line
Canadian bank ETFs could be a great option for you. They have reasonable fees, appealing return rates, and low investment requirements. If you’re new to investing or want to expand your portfolio, consider speaking with a financial advisor before you invest in any company or product.
