In this post, we will discuss one of the most popular Canadian Bank ETFs: ZEB BMO Equal Weight Banks Index. We will review ZEB’s historical performance and compare to similar ETFs in the market.
ZEB: Investment objective
The BMO Equal Weight Banks ETF has been designed to replicate, to the extent possible, the performance of the Solactive Equal Weight Canada Banks Index, net of expenses. The index includes the major Canadian banks with a balanced allocation as you can see in the composition of the portfolio below.
Banking sector perspectives 2022
- How to explain the great performance of the Canadian banking sector during the pandemic?
News of faster economic growth than anticipated seem to have favored the banking sector in the past months. Large Banks benefited from:
1-Trading: revenues are soaring from an exceptional year. Retail investors were abnormally active and trading much more than usual which increased commissions’ revenues for Banks;
2-Releasing large sums of money that were held in reserves to hedge against expected loan losses due to pandemic. These losses never materialized.
- What’s next for the banking sector?
The Banking sector is poised to benefit from a tighter monetary policy. This is because rising rates will help in boosting profits for banks, insurance companies, discount brokerage firms and asset managers. The difference between short and long-term interest rates is likely to improve banks’ net interest margins.
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ZEB ETF review: AUM, MER and Dividend yield comparison
| AUM in M | MER % | Div Yld | |
| FIE – Ishares CDN Fin Mthly Income | 978 | 0.89 | 5.85 |
| ZEB -BMO S&P TSX Equal Weight Banks Indx | 2,800 | 0.28 | 3.08 |
| ZWB –BMO Covered Call Canadian Banks | 2,700 | 0.72 | 5.37 |
| XFN –iShares S&P/TSX Capped Financials Index | 1,900 | 0.61 | 2.66 |
As of January 31st 2022 – Source: TD Market Research, MER for ZEB was reduced to 0.28% following a reduction announced by BMO in August 2021
ZEB ETF review: Performance comparison
| 6M | 3Y | 5Y | Beta 5yrs | |
| FIE | 9.24 | 14.62 | 9.74 | 1.2 |
| ZEB | 16.69 | 17.56 | 12.47 | 1.0 |
| ZWB | 13.36 | 13.62 | 9.73 | 0.9 |
| XFN | 14.26 | 16.54 | 11.27 | 1.0 |
As of January 31st 2022 – Source: TD Market Research
Based solely on historical performance, ZEB -BMO S&P TSX Equal Weight Banks Index had the best performance in the past 5 years. In addition, the fund pays around a 3% dividend yield. The management expense ratio is at 0.28%, which is the lowest among our list.
For income seekers, FIE Ishares CDN Fin Mthly Income offers an attractive dividend yield above 5%.
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ZEB Morningstar rating
ZEB Holdings
| Weight (%) | Name |
| 17,18% | BANK OF MONTREAL |
| 16,90% | TORONTO-DOMINION BANK/THE |
| 16,78% | CANADIAN IMPERIAL BANK OF COMMERCE |
| 16,59% | NATIONAL BANK OF CANADA |
| 16,50% | ROYAL BANK OF CANADA |
| 15,86% | BANK OF NOVA SCOTIA/THE |
| 0,19% | CASH |
Please consult issuers’ website for up-to-date data
ZEB dividends
| Distrib Period | Ex-Div Date | Pay Date | Total Distrib Per Unit |
|---|---|---|---|
| Jan, 2022 | Jan 27 | Feb 02 | 0.1200 |
| Feb, 2022 | Feb 24 | Mar 02 | 0.1200 |
| Mar, 2022 | Mar 29 | Apr 04 | – |
| Apr, 2022 | Apr 27 | May 03 | – |
| May, 2022 | May 27 | Jun 03 | – |
| Jun, 2022 | Jun 28 | Jul 05 | – |
| Jul, 2022 | Jul 27 | Aug 03 | – |
| Aug, 2022 | Aug 29 | Sep 02 | – |