Best Canadian Bank ETFs For 2024: Top 7 Picks & Reviews
Reviewed by Kristina Knight, Journalist , BA
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Canadians are looking to invest in bank stocks but don’t want the hassle of purchasing individual stocks. Exchange Traded Funds (ETFs) may be the perfect solution. ETFs offer a portfolio of assets with low fees and diversification benefits.
Basically, the main difference between buying individual stocks and ETFs is that ETFs give you exposure to a basket of assets instead of just one. For example, if you bought one Canadian Bank ETF, you would get exposure to several different banks.
This means lower risk since you won’t be as exposed to the potential volatility of a single stock. Plus, ETFs are generally more cost-effective than buying individual stocks. That’s why they’re becoming increasingly popular with investors looking for diversification and value.
So, if you’re looking to invest in Canadian Bank ETFs, here are some of the best ones available.
Top 7 Best Canadian Bank ETFs For 2024
- BMO Equal Weight Banks Index (ZEB): Best Overall
- RBC Canadian Bank Yield Index ETF (RBNK): Most Affordable
- Horizons Equal Weight Canadian Banks ETF (HEWB): Highest Yield
- CI First Asset CanBanc Income Class (CIC): Best for Dividend Growth
- BMO Covered Call Canadian Bank ETF (ZWB): Best for Income
- iShares S&P/TSN Capped Financials Index ETF (XFN): Most Diverse
- iShares Equal Weight Banc & Lifeco (CEW): High-Return ETF
What Is Canadian Bank ETF?
A Canadian Bank ETF is an exchange-traded fund that invests primarily in the stocks of banks located within Canada. Because these funds invest exclusively in domestic banking stocks, they provide investors with a convenient way to access the performance of Canada’s major banks from one security.
In hindsight, investing in a Canadian Bank ETF has been an attractive option for many investors as Canada’s banking sector has consistently outperformed internationally over the last decade. The stability of Canada’s major banks is largely attributed to their positive financial health, strong capital reserves, and prudent lending practices.
Check out the table below for a quick glance at the best Canadian Bank ETFs available today.
Factor To Choose Best Canadian Bank ETFs
Look for Low Fees
The fees associated with ETFs can vary significantly. Some ETFs may have a low expense ratio, while others may be more expensive. Look for the lowest fee possible when selecting an ETF.
Consider Dividend Yield
Dividend yields are one of the most important factors to consider when choosing a Canadian Bank ETF. High-yielding funds will provide investors with regular income but also come with increased risk, so it is important to research and understand what type of dividend yield is best suited for your investment goals before investing in any particular fund or product.
Check Portfolio Quality
It is important to assess the quality of the ETF’s underlying portfolio. Are the holdings diversified, and do they provide exposure to different sectors? Are there any high-risk investments that could lead to losses?
Look for Liquidity
Make sure that you are investing in an ETF with sufficient liquidity so that you can easily buy or sell your shares without incurring large spreads or transaction costs.
Check Performance Track Record
Research the performance history of a particular Canadian Bank ETF before investing in it. How has it performed compared to its peers over time? Evaluating past performance is one of the most important steps when selecting an ETF.
How To Buy Canadian Bank ETFs?
Brokerages such as TD, Questrade, and Interactive Brokers allow users to invest in ETFs. They provide access to a variety of exchange-traded funds (ETFs) that are available on the Toronto Stock Exchange or other Canadian stock exchanges, such as BMO ETFs or Horizons ETFs. Users can search for specific ETFs they want to buy by name, ticker symbol, sector, or asset class and buy them with just a few clicks.
Read more: Top 8 Best Trading Platform In Canada For 2024
Top 7 Best Canadian Bank ETF For April 2024
BMO Equal Weight Banks Index (ZEB)
The fact that ZEB provides monthly dividend income makes it a great option for investors looking to receive frequent payouts. Its lower management expense ratio and higher dividend yield than the average ETF also make this a smart choice for those seeking exposure to Canada’s banking sector.
- Exposure to top Canadian banks
- Focused on the banking sector
- Offers monthly dividend income
- Mid to high MER (Management Expense Ratio)
ZEB‘s portfolio consists of the top six Canadian banks, weighted equally. It has a management fee of 0.60%, and its total net assets stand at $2.9 billion CAD.
It tracks the Solactive Equal Weight Canada Banks Index, which their passive management strategy seeks to replicate. Its history of performance has been strong, with an average annual return of 10.62% over the last five years.
When compared to other ETFs in the same sector, its expense ratio is lower than most. It also has a higher dividend yield than the average ETF and one of the top Canadian bank ETFs in the market.
As mentioned above; there are so many things to like about BMO Equal Weight Banks Index (ZEB).
- Banking Sector Niche: Canadian banks are the most reliable and stable financial institutions in the world. ZEB offers investors exposure to a top-notch set of banks, including Royal Bank of Canada (TSX: RY), TD Bank Group (TSX: TD), and CIBC (TSX: CM). Focusing on one sector can sometimes be tricky, but the banking sector is one that often rewards investors.
- Lower Expense Ratio: ZEB has a Management Expense Ratio (MER) of 0.60%, lower than the average ETF in its sector, making it an excellent choice for those looking to save on costs while also gaining exposure to the Canadian banking sector.
- Monthly Dividend Payments: The ETF offers monthly dividend payments, something that not many other Canadian bank ETFs can boast about in this space. This makes it ideal for those looking to generate regular income from their investments without having to actively manage their portfolios every month or quarter.
RBC Canadian Bank Yield Index ETF (RBNK)
The main selling point is its price. At 0.32%, it is one of the lowest expense ratios for an ETF that tracks the Canadian banking sector, making it a great choice for investors who are looking to get exposure to Canadian banks without paying too much in fees.
The fact that it has a diversified portfolio with exposures to 5 different companies also makes this ETF attractive, as there is less risk associated with investing in individual stocks. Finally, its income-generating capability makes RBNK a great option for those looking to generate some passive income from their investments.
- Low MER
- Great capital gains
- Income generator
- Short track record
RBC Canadian Bank has one of the lowest expense ratios at 0.32%, making it one of the most affordable ETFs for Canadian banking. This ETF tracks the RBC Canadian Bank Yield Index, which consists of stocks from all major banks and other Canadian financial companies.
It has a very diversified portfolio with holdings in 5 different companies, including the Royal Bank of Canada, Toronto-Dominion Bank, Bank of Montreal, and more.
- Medium to High-Risk Rating: RBC Canadian Bank Yield Index ETF (RBNK) is a medium to high-risk exchange-traded fund that seeks to track the performance of a portfolio of Canadian banks, including Royal Bank of Canada and its subsidiaries. The fund’s objective is to provide investors with exposure to a diversified portfolio of bank stocks while providing them with the potential for capital appreciation.
- High Diversification: RBNK provides investors with high diversification through its holdings in five of the largest Canadian banks. The fund’s holdings include the Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, and National Bank of Canada.
- Low Fees: RBNK has a low management fee of 0.32%, which is lower than the average for ETFs in this category. This makes it so enticing for investors who are looking for a passive investment strategy with low costs.
Horizons Equal Weight Canadian Banks ETF (HEWB)
Compared to equal-weighted or individual stocks, HEWB’s mean reversion strategy provides a smoother ride for investors. This ETF is well-diversified, with exposure to all of the major Canadian banks and financial institutions, plus some smaller regional players. HEWB is a great choice for long-term investors looking to have a high-yield portfolio of blue-chip Canadian banking stocks.
- Diverse number of holdings
- Low expense ratio
- High-yield growth
- Not as liquid compared to other ETFs on the market
Another great option for investors looking to make strategic investments in the financial sector of Canada is Horizons Equal Weight Canadian Banks ETF (HEWB). It provides a portfolio of large-cap and medium-cap bank stocks from the Toronto Stock Exchange.
This ETF has an expense ratio of 0.60%, and its holdings include Royal Bank of Canada, TD Bank Group, CIBC, Bank Of Nova Scotia, National Bank Of Canada, Laurentian Bank Of Canada, and other big names.
- 7% Yield: The Horizons Equal Weight Canadian Banks ETF (TSX: HEWB) offers a high yield of 7%. It is one of the best Canadian banking ETFs for those looking for income from their investments. Note that the average dividend yield of Canadian banks is only 4%, so this ETF is a great way to get some extra income.
- Mean Reversion Strategy: HEWB follows a mean reversion strategy. This means that the ETF invests in banks whose stocks are trading at a discount to their historical prices relative to the other Canadian bank stocks. This helps investors get exposure to low-cost, undervalued banking stocks.
- Diversified Holdings: The ETF holds a diversified portfolio of the top 8 Canadian banks. This gives investors exposure to some of the largest and most stable Canadian Banks, such as Royal Bank of Canada (RY), Toronto-Dominion Bank (TD), and Bank of Montreal (BMO).
CI First Asset CanBanc Income Class (CIC)
Despite having a low yield this year, CIC is known for its dividend growth, meaning that it offers investors the potential for higher returns over time. This is a long-term strategy, as it requires investors to be patient and hold their positions for the long term.
- Good return rate
- Low-cost
- Holds the top 5 Canadian banks
- Low dividend yield
CIC holds the top five Canadian banks and is an excellent option for investors looking to diversify their portfolios with low-cost exposure to Canada’s big five. CIC has an expense ratio of 0.80% and offers quarterly distributions.
- Moderate MER: CI First Asset CanBanc Income Class (CIC) is a low-cost option for investors looking to get exposure to the Canadian banking sector. CIC has an MER of 0.65%, which is lower than the average Canadian financial sector ETF.
- Highly Covered: CIC gives investors exposure to 56 of Canada’s largest banks, including all of the Big Five and other regional players. With over 85% of assets invested in large-cap stocks, it is well-diversified across the banking industry.
- Dividend Growth: CIC provides investors with a steady stream of income through dividends. With an average dividend yield of 3.68%, CIC has seen consistent growth in its distributions over the past few years. Investors who value growth instead of yield can select from CIC’s dividend reinvestment option.
BMO Covered Call Canadian Bank ETF (ZWB)
Although it charges an above-average MER, its high dividend yield (5.60%) compensates for it. It’s a passive earner’s dream, creating steady income through its high dividend and covered call strategy. ZWB is an excellent option for investors who want to generate passive income while maintaining exposure to the Canadian banking sector.
- Excellent management
- Outstanding portfolio distribution
- Weighted and covered call strategies
- High MER
Managed by BMO Global Asset Management, the BMO Covered Call Canadian Bank ETF (ZWB) is one of the top ETFs for Canadian investors. ZWB’s equal-weighted portfolio of Canadian bank stocks provides diversified exposure to the banking sector.
- Covered Call Options: BMO Covered Call Canadian Bank ETF (ZWB) is a great way to gain exposure to the performance of Canada’s top banks while also providing investors with options income. The fund offers covered call options on its holdings which provides additional income for investors who are willing to give up some potential upside in return for steady cash flow.
- High Yield: WIth a 5.60.% yield, BMO Covered Call Canadian Bank ETF (ZWB) is one of the highest yielding ETFs of all the Canadian bank ETFs. This makes it an attractive option for income investors and those looking to maximize their returns from their investments.
- Long-term Growth: BMO Covered Call Canadian Bank ETF (ZWB) offers investors long-term growth potential as well. The fund has a track record of outperforming the broad market over time, and its holdings are in some of the most stable and profitable companies in Canada.
iShares S&P/TSN Capped Financials Index ETF (XFN)
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- Comprehensive packages
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- Expensive
With $1.4 billion in assets under management, the iShares S&P/TSX Capped Financials Index ETF (XFN) is one of the top Canadian banking ETFs. It tracks an index that captures the performance of large- and mid-cap stocks, including banks, insurers, and diversified financial services companies.
Top holdings include Royal Bank of Canada (RBC), Toronto-Dominion Bank (TD), CIBC, Sun Life Financial Inc., Manulife Financial Corp., National Bank of Canada, and Scotiabank.
- Excellent Performance: The iShares S&P/TSX Capped Financials Index ETF (XFN) is one of the best Canadian Bank ETFs available, with a 3-year annualized return rate of over 8.4%. This fund tracks the performance of large and mid-cap financial stocks in Canada.
- Diversified Portfolio: XFN provides exposure to 29 different Canadian financial stocks, including banks and insurance companies. This ETF is well-diversified across the entire sector, which helps to mitigate individual stock risk.
- Liquidity: XFN has over $1.4 billion in assets under management and is one of the most liquid ETFs in Canada. This makes it easy to buy and sell shares, as well as provides investors with a wide range of options for trading.
iShares Equal Weight Banc & Lifeco (CEW)
This last ETF we reviewed is invested not just with banks but with life insurance companies as well. The iShares Equal Weight Banc & Lifeco (CEW) ETF provides exposure to Canada’s largest banks and insurers in one package, allowing for a more diversified approach than buying individual stocks. More importantly, it offers excellent returns and stable dividend yields, making it a great option for long-term investors.
- Excellent growth ETF
- High-dividend yield
- High return
- High fees
Managed by BlackRock Asset Management Canada, this ETF seeks to replicate the performance of the Solactive Equal Weight Banc & Lifeco Index. It was launched in May 2018 and has an expense ratio of 0.61%.
- Diversified Portfolio: iShares Equal Weight Banc & Lifeco (CEW) is an excellent pick for investors looking for a diversified portfolio. It does not just focus on the banking sector but also includes insurance and other financials.
- Long-Term Growth: CEW has a distribution yield of 3.2%, which is slightly above the average for the sector and indicates potential for long-term growth.
- Excellent Returns: Over the past 5 years, CEW has delivered an average annual return of 8.9%, which is well above the sector’s average.
Final Thoughts
Buying and selling stocks can be a daunting task, especially when it comes to ETFs. With so many different options out there, investors need to know which ones best suit their investment strategies and goals.
The list above shows the best Canadian Bank ETFs and why they are worth considering. Whether you’re looking for a diversified portfolio or a specific sector to focus on, these funds offer great value and potential returns. With the right research, investors can make sure that their money is working hard for them in the Canadian banking market.
Frequently Asked Questions (FAQs)
An ETF, or exchange-traded fund, is a type of investment vehicle that tracks an index, commodity, bond, or basket of assets like an index fund. ETFs trade like stocks on exchanges and can be bought and sold throughout the day. They offer investors a way to diversify their portfolios without having to buy multiple individual securities.
BMO Equal Weight Banks Index and RBC Canadian Banks ETF are two of the best Canadian Bank ETFs available.
Investing in Canadian Bank ETFs offers investors access to the performance of Canada’s major banks at a lower cost than buying individual stocks. Additionally, these funds provide diversification and reduce risk since they contain multiple banks within one fund. Furthermore, these ETFs are liquid and transparent, making them easy to trade. Lastly, these funds have low fees, which makes them attractive to long-term investors.
When investing in Canadian Bank ETFs, investors should consider the type of fund they are buying. Some funds may focus on large-cap banks, while others may invest in smaller regional banks. Additionally, investors should be aware of the fees associated with each fund as well as any tax implications. Lastly, it is important to understand how these funds are structured and make sure that they align with your investment goals.
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+ 7 sources
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- BMO Equal Weight Banks Index ETF ZEB – CA EN ADVISORS. CA EN ADVISORS. Published 2022. Accessed December 16, 2022. https://www.bmogam.com/ca-en/advisors/investment-solutions/etf/bmo-equal-weight-banks-index-etf-zeb/
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- Horizons Equal Weight Canada Banks Index ETF. Horizons ETFs. Accessed December 16, 2022. https://horizonsetfs.com/ETF/hewb/
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