In this article, we’ll compare the best Canadian bank ETF in terms of yield, MER, dividend yield, and volatility. But first, we will discuss the future prospects of the banking sector.
Best Canadian bank ETF: Comparison AUM and MER
| Actifs en M | RFG % | |
| FIE – Ishares CDN Fin Mthly Income | 978 | 0.89 |
| ZEB -BMO S&P TSX Equal Weight Banks Indx | 2,800 | 0.28 |
| ZWB –BMO Covered Call Canadian Banks | 2,700 | 0.72 |
| RBNK -RBC CDN Bank Yield Index | 273 | 0.33 |
| HCA -Hamilton Canadian Bank Mean Reversion | 551 | 0.56 |
| CEW -Ishares Equal Weight Banc Lifeco | 245 | 0.61 |
| HEWB – Horizons Eql Wght Can Banks Index | 156 | 0.33 |
| HCAL – Hamilton Can Bank 1.25X Lvrg | 365 | 1.06 |
| XFN –iShares S&P/TSX Capped Financials Index | 1,900 | 0.61 |
Source: TD Market Research
The HCAL Hamilton Canadian Bank 1.25X Levrage ETF has the highest MER among the selected ETFs. Since one can easily replicate the portfolio held by most of the ETFs above, it is wise to choose ETFs that charge minimal fees. ZEB has the lowest MER at just 0.28%.
The ETFs above have different strategies which can be summarized below:
equal weighting: equally own the 7 largest Canadian banks;
leverage: HCAL uses for example a leverage of 1.25. This is ideal if you are bullish in banking. However, it should be noted that leverage increases rewards and risks;
active strategy: the managers will evaluate each bank within the portfolio and choose to over or underweight their allocations.
passive strategy: mainly XFN, which replicates the capped S&P/TSX financial sector index.
Best Candian Bank ETF: historical performance
Updated daily
Based on historical performance alone, the ZEB –BMO S&P TSX Equal Weight Banks ETF had the best performance in the past 5 years. Additionally, the fund pays a dividend yield of around 3%. The management expense ratio is 0.28%, the lowest on our list. ZEB invests in the 6 largest Canadian banks equally.
Another competitor to ZEB is the RBNK – RBC CDN Bank Yield Index fund. This fund is newer and had the best performance over 3 years. This fund also benefits from a very competitive management fee of 0.33%. The RBNK manager favors in its investment strategy the 2 Canadian banks that offer the highest rate of return (with an allocation of 25% each), followed by the banks that offer the lowest rate of return.
CEW Ishares Equal Weight Banc Lifeco and XFN iShares S&P/TSX Capped Financials Index are also good choices based on long-term performance. Both pay a dividend yield of around 3%.
For those looking for high dividend income, FIE Ishares CDN Fin Mthly Income offers an attractive dividend yield of over 5%. This fund invests about 80% of these holdings in bank stocks and the rest in a preferred stock ETF. HCAL – Hamilton Can Bank 1.25X Lvrg and HCA – Hamilton Canadian Bank Mean Reversion are also good alternatives. The only downside with his funds is the relatively high management fees.
ZWB – BMO Covered Call Canadian Banks is ideal for investors who want to earn high dividends and reduce their risk at the same time. ZWB is what is known as a covered call option writing fund. This type of fund has two purposes:
1- reduce the risk (volatility) of the portfolio by selling covered call options;
2- improve the dividend yield with the premiums earned following the issuance of covered call options.
The major disadvantage of this strategy is that the performance will be lower.
FIE – Ishares CDN Fin Monthly Income
Ishares CDN Fin Monthly Income seeks to maximize total return and to provide a stable stream of monthly cash distributions. FIE has a high exposure to the financial sector.
FIE Dividend ETF holdings
| Company Name | Allocation |
|---|---|
| iShares S&P/TSX Cdn Prefr Shr ETF Comm | 21.1% |
| iShares Core Canadian Corporate Bd ETF | 10.3% |
| Canadian Imperial Bank of Commerce | 8.5% |
| Royal Bank of Canada | 8.2% |
| The Toronto-Dominion Bank | 6.7% |
| National Bank of Canada | 6.5% |
| Manulife Financial Corp | 6.4% |
| Power Corporation of Canada | 6.0% |
Please consult issuers’ website for up to date data
Sector allocation
| Type | Fund |
| Banks | 44.96 |
| Insurance | 30.24 |
| Diversified Financials | 8.48 |
| Energy | 5.01 |
| Utilities | 4.50 |
| Real Estate | 2.81 |
| Telecommunications | 1.12 |
| Transportation | 0.73 |
| Food & Staples Retailing | 0.57 |
| Cash and/or Derivatives | 0.41 |
Please consult issuers’ website for up-to-date figures
ZEB – BMO S&P TSX Equal Weight Banks Index
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.
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
ZWB – BMO Covered Call Canadian Banks
The ZWB aims to provide exposure to a portfolio of dividend-paying securities (Canadian Banks), while collecting premiums related to call options. The portfolio is chosen on the basis of the criteria below:
• dividend growth rate; • yield; • payout ratio and liquidity.
ZWB holdings
| Name | Weight |
| BMO Equal Weight Banks ETF | 27.2% |
| Bank of Montreal | 12.9% |
| Canadian Imperial Bank of Commerce | 12.7% |
| Royal Bank of Canada | 12.1% |
| National Bank of Canada | 11.9% |
| The Toronto-Dominion Bank | 11.9% |
| Bank of Nova Scotia | 11.4% |
Please visit issuers’ website for up-to-date figures – Best Covered Call ETF Canada
RBNK – RBC CDN Bank Yield Index
RBC Canadian Bank Yield Index ETF seeks to replicate the Solactive Canada Bank Yield Index. The latter is focused only on the Canadian banking industry.
RBNK holdings
| Name | Weight |
| Canadian Imperial Bank of Commerce | 25.7% |
| Bank of Nova Scotia | 24.0% |
| Royal Bank of Canada | 16.6% |
| The Toronto-Dominion Bank | 15.9% |
| Bank of Montreal | 8.5% |
| National Bank of Canada | 8.0% |
Consult issuers’ website for up-to-date data
HCA – Hamilton Canadian Bank Mean Reversion
HCA invests in the 6 largest Canadian banks. This fund differentiates itself by its investment strategy, called “Mean reversion”.
The strategy is applied as follows:
80% of the portfolio in the 3 banks that performed the least well among the 6 largest Canadian banks;
20% remaining in the 3 banks which outperformed.
HCA holdings
| NAME | Weight |
| Bank of Nova Scotia | 27.9% |
| Toronto-Dominion Bank | 27.1% |
| Royal Bank of Canada | 26.4% |
| Bank of Montreal | 6.4% |
| Canadian Imperial Bank of Commerce | 6.2% |
| National Bank of Canada | 6.0% |
CEW -Ishares Equal Weight Banc Lifeco
Invests in a portfolio of common shares of Canada’s largest banks and life insurance companies.
| Name | Weight % |
| GREAT WEST LIFECO INC | 10,16 |
| IA FINANCIAL INC | 10,12 |
| TORONTO DOMINION | 10,06 |
| NATIONAL BANK OF CANADA | 10,05 |
| MANULIFE FINANCIAL CORP | 10,00 |
| BANK OF NOVA SCOTIA | 9,92 |
| SUN LIFE FINANCIAL INC | 9,90 |
| BANK OF MONTREAL | 9,86 |
| CANADIAN IMPERIAL BANK OF COMMERCE | 9,78 |
| ROYAL BANK OF CANADA | 9,70 |
HEWB – Horizons Eql Wght Can Banks Index
The Horizons Equal Weight Canada Banks Index ETF (“HEWB”) seeks to replicate the performance of the Solactive Equal Weight Canada Banks Index. The Index is an equal-weight index of equity securities of six Canadian banks.
| Security Name | Weight |
|---|---|
| TORONTO-DOMINION BANK | 17.17% |
| BANK OF NOVA SCOTIA | 16.82% |
| NATIONAL BANK OF CANADA | 16.77% |
| BANK OF MONTREAL | 16.65% |
| ROYAL BANK OF CANADA | 16.37% |
| CANADIAN IMPERIAL BANK OF COMMERCE | 16.23% |
Please consult issuers’ website for up-to-date data
HCAL – Hamilton Canadian Bank 1.25X Lvrg
The fund invests in HCA — which is designed to closely track the returns of the Solactive Canadian Bank Mean Reversion Index TR, investing in Canadian banks — while adding 25% leverage provided by a Canadian financial institution.
HCAL offers exposure to Canada’s “Big Six” banks with 25% leverage. The fund does not use derivatives.
| NAME | WEIGHT |
|---|---|
| Toronto-Dominion Bank | 27.0% |
| Bank of Nova Scotia | 26.6% |
| Royal Bank of Canada | 26.5% |
| Canadian Imperial Bank of Commerce | 6.7% |
| National Bank of Canada | 6.7% |
| Bank of Montreal | 6.5% |
Please consult issuers’ website for up-to-date data
XFN -iShares S&P/TSX Capped Financials Index
It is a passive strategy ETF. It replicates the performance of the S&P/TSX Capped Financials Index, net of fees.
| Name | Weight % |
| ROYAL BANK OF CANADA | 19.38 |
| TORONTO DOMINION | 18.36 |
| BANK OF NOVA SCOTIA | 10.58 |
| BROOKFIELD ASSET MANAGEMENT INC CL | 10.36 |
| BANK OF MONTREAL | 9.18 |
| CANADIAN IMPERIAL BANK OF COMMERCE | 6.87 |
| MANULIFE FINANCIAL CORP | 5.06 |
| SUN LIFE FINANCIAL INC | 3.81 |
| NATIONAL BANK OF CANADA | 3.26 |
| INTACT FINANCIAL CORP | 3.04 |