canadian bank etf

Best Canadian bank ETF in Canada

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
9780.89
ZEB -BMO S&P TSX
Equal Weight Banks Indx
2,8000.28
ZWB –BMO Covered
Call Canadian Banks
2,7000.72
RBNK -RBC CDN
Bank Yield Index 
2730.33
 HCA -Hamilton Canadian
Bank Mean Reversion 
5510.56
CEW -Ishares Equal
Weight Banc Lifeco
2450.61
HEWB – Horizons Eql
Wght Can Banks Index
1560.33
 HCAL – Hamilton Can
Bank 1.25X Lvrg
3651.06
XFN –iShares S&P/TSX
Capped Financials Index
1,9000.61

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 NameAllocation
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 Canada8.2%
The Toronto-Dominion Bank6.7%
National Bank of Canada6.5%
Manulife Financial Corp6.4%
Power Corporation of Canada6.0%

Please consult issuers’ website for up to date data

Sector allocation

TypeFund
Banks44.96
Insurance30.24
Diversified Financials8.48
Energy5.01
Utilities4.50
Real Estate2.81
Telecommunications1.12
Transportation0.73
Food & Staples Retailing0.57
Cash and/or Derivatives0.41

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

NameWeight
BMO Equal Weight Banks ETF27.2%
  Bank of Montreal12.9%
Canadian Imperial Bank of Commerce12.7%
Royal Bank of Canada12.1%
National Bank of Canada11.9%
  The Toronto-Dominion Bank11.9%
Bank of Nova Scotia11.4%

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

NameWeight
Canadian Imperial Bank of Commerce25.7%
Bank of Nova Scotia24.0%
Royal Bank of Canada16.6%
The Toronto-Dominion Bank15.9%
Bank of Montreal8.5%
National Bank of Canada8.0%

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

NAMEWeight
Bank of Nova Scotia27.9%
Toronto-Dominion Bank27.1%
Royal Bank of Canada26.4%
Bank of Montreal6.4%
Canadian Imperial Bank of Commerce6.2%
National Bank of Canada6.0%

CEW -Ishares Equal Weight Banc Lifeco

Invests in a portfolio of common shares of Canada’s largest banks and life insurance companies.

NameWeight
%
GREAT WEST LIFECO INC10,16
IA FINANCIAL INC10,12
TORONTO DOMINION10,06
NATIONAL BANK OF CANADA10,05
MANULIFE FINANCIAL CORP10,00
BANK OF NOVA SCOTIA9,92
SUN LIFE FINANCIAL INC9,90
BANK OF MONTREAL9,86
CANADIAN IMPERIAL BANK OF COMMERCE9,78
ROYAL BANK OF CANADA9,70

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 NameWeight
TORONTO-DOMINION BANK17.17%
BANK OF NOVA SCOTIA16.82%
NATIONAL BANK OF CANADA16.77%
BANK OF MONTREAL16.65%
ROYAL BANK OF CANADA16.37%
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.

NAMEWEIGHT
Toronto-Dominion Bank27.0%
Bank of Nova Scotia26.6%
Royal Bank of Canada26.5%
Canadian Imperial Bank of Commerce6.7%
National Bank of Canada6.7%
Bank of Montreal6.5%

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.

NameWeight
%
ROYAL BANK OF CANADA19.38
TORONTO DOMINION18.36
BANK OF NOVA SCOTIA10.58
BROOKFIELD ASSET MANAGEMENT INC CL10.36
BANK OF MONTREAL9.18
CANADIAN IMPERIAL BANK OF COMMERCE6.87
MANULIFE FINANCIAL CORP5.06
SUN LIFE FINANCIAL INC3.81
NATIONAL BANK OF CANADA3.26
INTACT FINANCIAL CORP3.04