The Canadian banking industry has some of the strongest and most robust banks in the world. They have an history of strong performance with stable and increasing dividends.
This post contains 6 of the best Canadian Bank ETFs in Canada for investors looking to include the big banks in their investment portfolio.
Top Canadian Bank ETFs
Here’s a comparison of the key data for the best Canadian Bank ETFs in Canada for 2022:
|Symbol||MER (%)||AUM ($m)||Yield (%)||Div Freq.||YTD Perf (%)||1-yr Perf (%)||3-yr Perf (%)||# of Hold.|
The performance data above is as at July, 2022 We’ll go into details about the unique features, holdings, fees and more for each of the ETFs in the following sections.
*Details as at December 31, 2021
**As at January 31, 2022.
1. BMO Equal Weight Banks Index ETF (ZEB)
The first ETF on the list of top Canadian Bank ETF is BMO Equal Weight Banks Index ETF (ZEB). ZEB is designed for investors looking for both dividend and growth from 6 of the largest Canadian Banks.
ZEB tracks the performance of the Solactive Equal Weight Canada Banks Index. That means it invests in the same securities as the ones in the index.
The securities are held at equal weight or proportion, so ZEB is not a market capitalization weighted ETF. However, depending on when you check, there could be slight variations in the weights for each bank since they’ll perform differently.
But any wide variation from the target weights will be adjusted at the next rebalancing date (semi-annually for the Solactive index.)
As at August 30, 2022, the weights for the banks that make up ZEB holdings were:
- NATIONAL BANK OF CANADA: 17.68%
- ROYAL BANK OF CANADA: 17.46%
- TORONTO-DOMINION BANK: 17.08%
- BANK OF MONTREAL: 16.58%
- BANK OF NOVA SCOTIA: 15.70%
- CANADIAN IMPERIAL BANK OF COMMERCE: 15.62%
ZEB has an MER of 0.28% as at August, 2022, so you’ll be paying a fee of $2.8 on an investment of $1,000 in the ETF. The MER was reduced from 0.60% in 2021.
This is still higher than what you would pay on broad market ETFs but comparable to the other Canadian Bank ETFs on this list.
In terms of performance, ZEB returned 39.28% in 2021 and has a 3-year annualized performance of 11.47%.
Learn more about ZEB including the latest price, performance, holdings and weight on the product page here.
2. RBC Canadian Bank Yield Index ETF (RBNK)
RBC Canadian Bank Yield Index ETF (RBNK) is the next on our list of the best Canadian Bank ETFs. It is a relatively new fund with an inception date of Oct 2017.
RBNK’s investment strategy is to track the Solactive Canada Bank Yield Index. It accomplishes this by holding the same securities and at the same proportion as the Solactive index.
Unlike ZEB, RBNK does not hold the banks in equal proportions. It allocates a higher weight to CIBC and BNS.
The portfolio allocation of RBNK as at August 30, 2022 are below:
- CANADIAN IMPERIAL BANK OF COMMERCE: 25.0%
- BANK OF NOVA SCOTIA: 24.1%
- TORONTO-DOMINION BANK: 17.5%
- BANK OF MONTREAL: 16.6%
- ROYAL BANK OF CANADA: 8.4%
- NATIONAL BANK OF CANADA: 8.4%
Here’s what RBC has to say about its weighting: “The unique stock weighting methodology is designed to provide enhanced dividend yield and return potential.”
Interestingly, the ETF still manages to march the performance of ZEB. It had a 1-year performance of 2.1% and dividend yield of 3.08%. But with ZEB’s dropping its MER last year, RBNK’s MER of 0.33% is now slightly higher than ZEB’s.
iShares Equal Weight Banc & Lifeco ETF (CEW) is the odd one out in this ranking of the top Canadian Bank ETF. CEW’s investment objective is “to provide a diversified, equal-weighted portfolio of common shares of the largest Canadian banks and life insurance companies.”
That is, in addition to the large Canadian banks, you’ll also be getting access to some of the largest insurance companies in Canada when you buy the ETF.
CEW seeks to hold each of the securities in equal proportion and it has a small allocation to iShares S&P/TSX Capped Financials (XFN).
The portfolio holdings of CEW as at August 30, 2022, are below:
|IA FINANCIAL INC||10.65|
|CANADIAN IMPERIAL BANK OF COMMERCE||10.07|
|NATIONAL BANK OF CANADA||9.96|
|GREAT WEST LIFECO INC||9.89|
|MANULIFE FINANCIAL CORP||9.82|
|BANK OF MONTREAL||9.81|
|ROYAL BANK OF CANADA||9.72|
|SUN LIFE FINANCIAL INC||9.68|
|BANK OF NOVA SCOTIA||9.63|
The portfolio holdings are rebalanced quarterly.
With more holdings (10 securities), it is unsurprising that CEW has an higher MER (0.61%) than the 2 other Canadian bank ETFs above.
CEW’s 1-year performance for the ETF was -0.24% as at July 2022 with a 3-year average performance of 34.44%.
Dividend yield as at August, 2022 was 4.08% which was competitive compared to other Canadian Bank ETFs in this ranking.
4. BMO Covered Call Canadian Banks ETF (ZWB)
BMO Covered Call Canadian Banks ETF (ZWB)‘s objective is to hold the securities of the top Canadians banks while earning extra income through covered call options.
It holds the stocks of the big 5 banks and National Bank both directly and through ZEB, so it’s a fund of fund.
Unlike ZEB though, BMO Covered Call Canadian Banks ETF is actively managed. It is constantly writing covered call options based on its analysis of the implied volatility of the options.
This explains why its MER, at 0.71%, is higher than ZEB’s and the other Canadian Bank ETFs on this list. However, it makes up for the higher cost by having a much higher income distribution.
For example, the annualized dividend yield as at August 2022 was 6.65% compared to just 3.92% for ZEB.
ZWB also lags ZEB in terms of performance with a 2021 annual performance of only 30.84% compared to 39.28% for ZEB.
The difference in performance is partly compensated by the higher distribution, but overall, ZEB has a better total return based on historical performance.
The following are the top 7 portfolio holdings of ZWB as at August 30, 2022:
|BMO EQUAL WEIGHT BANKS INDEX ETF||24.37%|
|NATIONAL BANK OF CANADA||13.43%|
|ROYAL BANK OF CANADA||13.27%|
|BANK OF MONTREAL||12.60%|
|BANK OF NOVA SCOTIA/THE||11.93%|
|CANADIAN IMPERIAL BANK OF COMMERCE||11.87%|
In addition to the above, the ETF also had covered call options for Bank of Nova Scotia and CIBC.
Note: While covered call options are one of the less risky option types, they put a cap on the potential profits you can earn on your stock. This would also partly explain why ZWB’s performance is lower than ZEB’s.
5. CI First Asset CanBanc Income Bank ETF (CIC)
The CI First Asset CanBanc Income Bank ETF (CIC) has a similar strategy as ZWB. It also holds the stocks of the big 5 banks and National Bank at almost equal weights, but augments its income by selling covered call options.
The portfolio holdings in February 2022 were:
- CIBC: 16.95%
- Royal Bank of Canada: 17.00%
- Toronto-Dominion Bank: 16.65%
- National Bank: 16.22%
- Bank of Nova Scotia: 16.16%
- Bank of Montreal: 16.58%
In addition, it had 6 covered call option positions in each of the 6 banks making up the portfolio.
CIC has a current dividend of 6.76% which is much higher than the comparable ETF from BMO, and it also has a lower MER (0.65%).
With a net asset of $1.4 billion, iShares S&P/TSN Capped Financials Index ETF (XFN) is a larger fund than its counterpart ETF, CEW, from iShares and all the other ETFs on this list except the BMO ETFs.
It also has a much longer track record with a launch date of March, 2001.
XFN “seeks long-term capital growth by replicating the performance of the S&P/TSX Capped Financials Index, net of expenses.”
The ETF is market-weighted and invests in other companies within the financial sector. It has a total holding of 29 securities and the weights of the top 10 as of August 30, 2022 are shown below:
|ROYAL BANK OF CANADA||19.72|
|BROOKFIELD ASSET MANAGEMENT INC CL||10.51|
|BANK OF NOVA SCOTIA||10.01|
|BANK OF MONTREAL||9.45|
|CANADIAN IMPERIAL BANK OF COMMERCE||6.46|
|MANULIFE FINANCIAL CORP||4.97|
|SUN LIFE FINANCIAL INC||3.86|
|INTACT FINANCIAL CORP||3.78|
|NATIONAL BANK OF CANADA||3.35|
The top 10 securities accounted for about 90% of its net assets, with the big 5 banks plus National Bank making up 66%.
Like CEW, XFN’s MER is also 0.61%. XFN returned 35.53 in 2021 with a current annualized distribution yield of 3.17%.
7. Hamilton Enhanced Canadian Bank ETF (HCAL)
Compared to the other Canadian Bank ETFs on this list, the Hamilton Enhanced Canadian Bank ETF (HCAL) is relatively new.
HCAL has an inception date of October 14, 2020 and is listed on the Toronto Stock Exchange.
It holds the shares of the top 6 Canadian Banks using an index-based, mean-reversion strategy with some leverage.
The leverage is meant to enhance its yield. HCAL differs from the other ETFs in this regard. ZWB for example enhances its yield using covered calls.
The HCAL portfolio holdings as at August, 2022 were:
|Bank of Nova Scotia||26.70%|
|Canadian Imperial Bank of Commerce||26.70%|
|Royal Bank of Canada||6.70%|
|National Bank of Canada||6.60%|
|Bank of Montreal||6.60%|
Are they worth it?
Investing in any of the Canadian Bank ETFs is a great way to quickly and cheaply own shares of the biggest banks in Canada. But unless you’re holding them as part of a larger diversified portfolio, owing just a few stocks is risky.
Their MERs are also on the higher end. But they’re still worth holding depending on your personal situation.
Here are some benefits of investing in Canadian banks using an ETF instead of buying the individuals stocks:
- Monthly Dividends: Want to receive your dividends monthly rather than wait for the quarterly distribution from the banks? These ETFs lets you do just that – except for CIC that pays a quarterly dividend.
- Low investment amounts: With the exception of ZEB, all the other ETFs have a low dollar price below $30. Meaning, you can start investing with little money. Reinvesting your dividends will also be much easier compared to buying each bank individually.
- Lower investment cost: The Canadian Banks ETFs help you get exposure to the Big 6 banks with a single purchase. You’ll be paying commissions on just one trade instead of 6 trades if you were to buy them individually. And the good news is, some brokerages like Wealthsimple Trade and Questrade will let you buy ETFs for free.
Who should buy Canadian Bank ETFs?
If you’re an income-seeking investor that want a monthly, predictable cash-flow, investing in a Canadian Bank ETF may be a good idea.
Also, when you’re in the accumulation stage and have little sums to invest regularly, going the ETF route may be attractive compared to buying the individual bank stocks.
But as your portfolio value grows, you may be better off selling the Canadian Bank ETF to invest directly in the banks.
Managing your own portfolio will require more effort but it’s definitely worth it and you can easily automate it using services like Passiv. Passiv is free for Questrade users – $99/year value.
Which one is right for you?
Overall, RBC Canadian Bank Yield Index ETF (RBNK) is the best Canadian Bank ETF if you want an ETF that simply invests in the big banks. Its performance and dividend yield are slight better than BMO Equal Weight Banks Index ETF (ZEB). And the MER is just half of ZEB’s.
If you don’t mind holding the shares of some insurance companies, iShares Equal Weight Banc & Lifeco ETF (CEW) may be right for you. It is more diversified but has an higher MER and slightly lower dividend yield.
ZWB and CIC, the 2 ETFs that uses covered call options to increase their yield are great for income-seeking investors. However, they’ll likely underperform the other ETFs in a bullish market. For example, ZWB’s 1-year performance was only 48.47% compared to 57.25% for ZEB as at May 31, 2021.
But they’ll offer some downside protection in the event of Canadian Banks underperforming.
How to Buy Canadian Bank ETFs?
You should be able to buy all the ETFs at your existing brokerage with ease.
But if you want to keep your cost low, here are the best 2 options available to buy any of the Canadian Bank ETFs in Canada.
- Wealthsimple Trade: This commission-free trading app lets you buy and sell thousands of stocks listed on US and Canada exchanges for free. You can trade on the sleek mobile app or on your desktop. The available account types are RRSP, TFSA and non-registered/taxable accounts. New users can get a welcome bonus of $10 here.
- Questrade: Another way to buy the ETFs for Canadian Banks is through Questrade’s self-directed investing platform. Buying ETFs is free but selling starts at $4.95 with a maximum of $9.95. The selling cost isn’t a deal-breaker if you plan to build your holdings over time and hold for long. Get $50 Trade rebate using this Questrade offer code.
Which one should you pick between Questrade and Wealthsimple Trade?
If you want access to other investment accounts like RESP, LIRA, spousal RRSP and so on, Questrade is a better choice. It is a full-fledged brokerage offering more investment products and account types.
However, if you just need a way to buy the Canadian Banks ETF in an RRSP, TFSA or taxable account, then Wealthsimple Trade will do just fine. Not only will you avoid paying any commission to buy the ETFs, selling them will also be free.
Alternatives To Canadian Bank ETFs
There’s no doubt that holding the Canadian Bank ETFs over the past few years would have given you some great returns.
But are there better ways of getting access to the big banks stocks or investing your money in general?
Here are 3 alternatives to Canadian Bank ETFs:
1. Build Your Own Portfolio
With a little effort, you can replicate the ETF holdings by buying the banks directly. Depending on your brokerage, this may be costly since you’ll be paying commissions for each trade.
Imagine paying commissions for 6 trades each time you contribute to your investment account.
But you can avoid the commission and build a portfolio of individual stocks for free using Wealthsimple Trade. Buying and selling is completely free so both the process of building the portfolio and any rebalancing in the future would be free.
More importantly, you’ll avoid the high MERs of the ETFs and earn even more in dividends. For example, if you were to replicate ZEB holdings and buy the Top 6 banks at equal weighting, your weighted average dividend would be 3.90% compared to 3.62% for ZEB.
The only con here is dollar price of the stocks. Many of them are priced around $100, so unless you’re contributing thousands of dollars each time, allocating the funds to the individual stocks won’t be easy.
With the ETFs on the other hand, you can invest even if you’re only contributing $50 or $100 per month. Reinvesting your dividends is also much easier.
Related Post: Canadian Banks Dividend Payment Dates
2. Buy Dividend ETFs
Another alternative to the Canadian Bank ETFs is buying a dividend ETF with exposure to other sectors.
You’ll be getting access to other great dividend paying Canadian companies across sectors like Insurance, utilities, telecoms and many more. That means your portfolio will be more diversified and be less sensitive to any shock to the Canadian banking industry.
A few dividend ETFs available to Canadians include:
- iShares Core S&P/TSX Composite High Dividend Index ETF (XEI)
- Vanguard Canadian High Dividend Yield Index ETF (VDY)
- BMO Canadian Dividend ETF (ZDV)
Vanguard Retirement Income ETF Portfolio (VRIF) is another great alternative for those in retirement seeking monthly cash flow.
3. Invest in the broad market
Finally, you may want to invest in a broad market ETF to have even better diversification than what you’ll get from either a Canadian Bank ETF or Dividend ETF.
Vanguard, iShares and BMO have several options that caters to different risk tolerance. Check the post linked below to compare the available one-ticket ETFs available to Canadians.
And if you’re only interested in a Canada broad market ETF with low MERs, a few options include:
- Vanguard FTSE Canada All Cap Index ETF (VCN)
- iShares Core S&P/TSX Capped Composite Index ETF (XIC)
- BMO S&P TSX Capped Composite Index ETF (ZCN)
Related Posts: Asset Allocation ETFs: How Do They Work?
The 6 Canadian Bank ETFs covered in this post are a good place to state for investors looking for higher yields from some of the largest companies in Canada.
But with some extra effort, you can easily replicate the ETFs holdings using a commission-free investing platform like Wealthsimple Trade.
One other thing to note is that the big banks already constitute a large proportion of many broad market ETFs. So unless you’re looking for generous dividends, you may be better off investing using an ETF that is more diversified.