Growth ETFs specializing in the financial sector (Banking and Insurance) have been on the rise since the start of the year. In this post, we will discuss the factors that favored the good performance achieved and also the risks that could impact it in the short term. We will discuss the top 5 financial sector ETFs that performed best in Canada in 2021. We limited ourselves to funds with assets under management greater than $ 100 million.
In fact, several factors helped increase the performance of these ETFs:
– The expected increase in interest rates generally favors retail banks in the long term;
– The majority of banks found themselves with exceptional results following the reversal of provisions set for the pandemic. Now that the vaccination is going better than expected (especially in the United States), the banks have ruled that these provisions are no longer relevant. The reversal of these provisions resulted in record profits;
– The segment behind banks’ profitability in the first quarter of 2021 is trading and investment banking activities. The level of trading activities led by small investors lately is really high. This high interest by individual investors in the financial markets was fueled by social media such as Reddit groups. Obviously, Banks benefited from this enthusiasm because of the increase in commissions earned. However, historically this kind of profit can quickly collapse with the slightest major correction in the stock market. American banking executives call this kind of income a “one time deal”.
The three largest US banks (JPMorgan, Goldman and Wells Frago) reported results better than expected by analysts in the first quarter of the year. However, not all segments performed well. Thus, traditional activities (deposits and loans) experienced performance below expectations. JP Morgan executives have even warned that they do not expect any improvement in the short term for this segment. They added that household spending should increase to return to pre-pandemic levels later this year, but that activities related to loans and credits in general should resume more slowly. Hence, revenues should remain either flat and improve slowly by the end of the year.
Note that you may gain exposure to the US financial sector by purchasing US listed ETFs. Below is the list of American ETFs that specialize in the financial sector. This can be tax-efficient if held in a registered account (RRSP).
Table showing the best performing Financial Sectors ETFs since the beginning of the year
|Symbol – Name||YTD |
| AUM* |
|ZUB – BMO Eql Wgt US Bank Hdgd To CAD||34.57%||607||0.35%|
|ZBK – BMO Equal Weight US Bank||28.49%||860||0.35%|
|FLI – CI First Asset US Cda Lifeco Income ETF||22.82%||103||0.75%|
|FSF – CI First Asset Global Financial Sector ETF||22.08%||724||0.85%|
|ZEB – BMO S&P TSX Equal Weight Banks Index ETF||21.56%||1,676||0.55%|
ZUB – BMO Eql Wgt US Bank Hdgd To CAD
The BMO Equal Weight US Banks Hedged to CAD Index ETF (ZUB) has been designed to replicate, to the extent possible, the performance of the Solactive Equal Weight US Bank Index Canadian Dollar Hedged, net of expenses. The Fund invests in and holds the Constituent Securities of the Index in the same proportion as they are reflected in the Index. The U.S. dollar exposure is hedged back to Canadian dollars.
|98,78%||BMO EQUAL WEIGHT US BANKS INDEX ETF||ZBK|
ZBK – BMO Equal Weight US Bank
BMO Equal Weight US Banks Index ETF has been designed to replicate, to the extent possible, the performance of the Solactive Equal Weight US Bank Index, net of expenses. The Fund invests in and holds the Constituent Securities of the Index in the same proportion as they are reflected in the Index.
This ETF is not hedged.
Holding details as of May 13th
|5,51%||WELLS FARGO & CO|
|5,35%||AMERIPRISE FINANCIAL INC|
|5,24%||BANK OF AMERICA CORP|
|5,17%||CITIZENS FINANCIAL GROUP INC|
|5,13%||PNC FINANCIAL SERVICES GROUP INC/THE|
|5,11%||FIRST REPUBLIC BANK/CA|
|5,10%||FIFTH THIRD BANCORP|
|4,96%||M&T BANK CORP|
FLI – CI First Asset US Cda Lifeco Income ETF
FLI invests in a portfolio of stocks of major North American life insurance companies.
The fund has the following objectives:
i) quarterly cash distributions;
ii) the possibility of capital appreciation; and
iii) lower overall volatility of returns.
|LINCOLN NATIONAL CORP||10,84|
|PRUDENTIAL FINANCIAL INC||10,35|
|GREAT WEST LIFECO INC||10,00|
|PRINCIPAL FINANCIAL GROUP INC||9,87|
|SUN LIFE FINANCIAL INC||9,29|
|MANULIFE FINANCIAL CORP||9,12|
|GLOBE LIFE INC||8,99|
FSF – CI First Asset Global Financial Sector ETF
The Fund’s investment objectives are to seek long-term total returns consisting of long-term capital appreciation and regular dividend income from an actively managed portfolio composed primarily of securities of issuers in the global financial services sector across developed and emerging markets.
|ING GROEP NV||7,90|
|BURFORD CAPITAL LTD||6,09|
|CONDUIT HOLDINGS LTD||4,46|
|EQUITABLE HOLDINGS INC||4,43|
|EAST WEST BANCORP INC||4,24|
|ATHENE HOLDING LTD||3,96|
|MONETA MONEY BANK AS||3,91|
|MANULIFE FINANCIAL CORP||3,76|
ZEB – BMO S&P TSX Equal Weight Banks Index ETF
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.
Holding details as of May 13th
|17,18%||BANK OF MONTREAL|
|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|