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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)ObjectiveDividend Yield1-Yr ReturnAssets Under ManagementManagement Expense Ratio
BMO Covered Call Canadian Banks ETF (ZWB)Generate income by selling covered calls big six banks7.76%-6.55%$2.98 billion0.71%
Hamilton Enhanced Canadian Bank ETF (HCAL)25% leverage on big six banks8.31%-11.26%$422.06 million0.65%
RBC Canadian Bank Yield Index ETF (RBNK)Big six banks weighted by dividend yield5.34%-6.9%$232.6 million0.32%
TD Canadian Bank Dividend Index ETF (TBNK)Bix six banks weighted by dividend growth rates4.95%N/A$20.34 million0.27%
iShares S&P/TSX Capped Financials ETF (XFN)Exposure beyond big six banks to broader financial sector4.34%-0.90%$1.34 billion0.61%

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-Year3-Years5-Years
Annualized Performance*-6.55%5.82%4.63%
*Average annual return as of November 30th, 2023, assuming dividends are reinvested

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.

Covered call
Source: Fidelity

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.

ProsCons
High distribution yield from covered call strategyCapped upside potential limits growth in strong economies
Great for sideways and unpredictable marketsHigher 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-Year3-Years5-Years
Annualized Performance*-11.26%7.54%N/A
*Average annual return as of November 30th, 2023, assuming dividends are reinvested.

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.

HCAL

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.

ProsCons
Highest Dividend YieldLeverage magnifies losses in down markets
Leverage amplifies returnsHigher, but fair MER
Monthly income distributionsRising 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-Year3-Years5-Years
Annualized Performance*-6.9%8.2%6.7%
*Average annual return as of November 30th, 2023, assuming dividends are reinvested

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.

ProsCons
Simple method to understandLess 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
YTD3-Years5-Years
Annualized Performance*-6.18%N/AN/A
*Average annual return as of November 30th, 2023, assuming dividends are reinvested

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

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. 

ProsCons
More potential for growthNew and unproven ETF
Monthly distributionsLimited diversification
Low MERLower yield

iShares Canadian Bank ETF (Ticker: XFN)

  • AUM: $1.34 Billion
  • Inception Date: March 2001
  • Expense Ratio (MER): 0.61%
  • Dividend Yield: 4.34%
  • Distribution Frequency: Monthly
1-Year3-Years5-Years
Annualized Performance*-0.909.30%7.74%
*Average annual return as of November 30th, 2023, assuming dividends are reinvested

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.

XFN

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. 

ProsCons
Most diversified optionModerate MER (0.61%)
Long track record with proven AUMLower 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.
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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.

FAQs About Best Canadian Bank ETFs

What are the best Canadian bank ETFs?

The best bank ETFs depend on your goals and risk tolerance. ZWB and HCAL offer higher income, RBNK focuses purely on yield optimization, TBNK targets growth through rising dividends, and XFN provides broader sector diversification.

Why are Canadian bank ETFs falling?

Canadian bank stocks dropped over the previous year. This was driven by concerns about a stalling economy, along with rising housing costs and unemployment. However, bank ETFs have been performing well lately

Which bank ETF has the highest growth potential?

TBNK likely has the highest long-term growth potential out of the significant bank ETFs. While an unestablished choice, the fund prioritizes banks that have consistently increased dividends. Since share price growth often aligns with dividend hikes, this tilt favours the ETF for future price gains.

Which bank ETF has the highest dividend? 

The Hamilton Enhanced Canadian Bank ETF (HCAL) currently offers the highest dividend yield at over 8%. HCAL maximizes income by utilizing 25% leverage on the big six banks. However, leverage is a double-edged sword, magnifying both gains and losses. 
Daniel Schoester avatar on Loans Canada
Daniel Schoester

Daniel is an expert on travel and finance. He received an Honours BBA (Finance) from Wilfrid Laurier University, then started his career with WOWA. Daniel is now the founder and lead financial writer of Croton Content. Aside from Loans Canada, notable clients include Forbes Advisor, WealthRocket, and Hardbacon. Daniel loves to travel when not working. Although based out of Lisbon, Portugal, some of his most adventurous destinations include Rio, Cairo, and Istanbul.

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