Getting started in the Canadian stock market? Then you should check out the available bank ETFs in Canada. Instead of investing a lot of money into each bank directly, you can hold shares in multiple banks with a Canadian bank ETF.
In this guide, we’ll help you pinpoint the best Canadian bank ETF for your requirements, but you can also check out Canadian ‘Best ETFs‘ overall, and ‘ETFs by Sector‘, as well. So let’s get started right away!
What Are ETFs? What Is a Canadian Bank ETF?
An ETF or Exchange Traded Fund is simply a basket of securities that may include commodities, stocks (see silver stocks), and bonds (see bond ETF here). Unlike stocks, which are used to represent shares (see preferred shares in Canada, too) in individual companies, ETFs represent shares in more than one company in a single package.
A Canadian bank ETF is an ETF that holds securities in the nation’s bank. The banks can make up 100% of its securities or a portion of them.
Comparison Table
| ETF | Ticker | Inception Date | MER | Dividend Yield | Distribution Frequency | Net Asset | Holdings |
| BMO Equal Weight Banks Index ETF | ZEB | 20/10/09 | 0.61% | 3.98% | Monthly | $1,484M | 7 |
| iShares S&P/TSX Capped Financials Index | XFN | 23/3/01 | 0.61% | 3.60% | Monthly | $1,090M | 26 |
| RBC Canadian Bank Yield Index ETF | RBNK | 10/17 | 0.32% | 4.58% | Monthly | $107.44M | 6 |
| CI First Asset CanBanc Income Bank ETF | CIC | 18/8/10 | 0.65% | 4.58% | Quarterly | $159.2M | 12 |
| iShares Equal Weight Banc & Lifeco | CEW | 6/2/08 | 0.60% | 3.75% | Monthly | $164.6M | 11 |
| CI Canadian Banks Income Class | CIC | 18/08/20 | 0.80% | 3.68% | Monthly | $196.967M | 12 |
| iShares Canadian Financial Monthly Income | FIE | 16/4/10 | 0.89% | 6.06% | Monthly | $917.39M | 27 |
| BMO Covered Call Canadian Banks ETF | ZWB | 28/1/11 | 0.71% | 5.6% | Monthly | $1,886M | 30 |
Our Recommendation:
Top Canadian Bank ETFs to Watch
As a newcomer to the Canadian stock market, you might be wondering which Canadian bank ETFs to keep an eye on.
But guess what? We’ve done the research for you and reviewed eight of the most promising Canadian bank ETFs for you to watch!
1. BMO Equal Weight Banks Index ETF (ZEB)
The BMO Equal Weight Banks Index ETF (ZEB) is explicitly tailored for investors that want a good balance between growth and dividend. It includes shares in six of the most established banks in the Great White North.
The performance of ZEB is pretty robust. The ETF projected a return of 19.26% in 2021, in addition to a 3-year performance of 10.43%.
With a management expense ratio (MER) of 0.60%, ZEB’s fees are somewhat higher than broad market ETFs. However, it’s at roughly the same level as other Canadian bank ETFs.
ZEB’s securities are at roughly the same weight, though this depends on the time you check the numbers. It also implies that this ETF isn’t weighted for market capitalization. It’s also worth noting that ZEB keeps a record of the Solactive Equal Weight Canada Banks Index, meaning that both indexes share the same securities.
The portfolio holdings for ZEB as of September 16, 2021, are:
- BMO: 17.26%
- Canadian Imperial Bank of Commerce: 17.94%
- Royal Bank of Canada: 16.68%
- Toronto-Dominion Bank: 15.64%
- National Bank: 16.88%
- Bank of Nova Scotia: 15.12%
Pros
- Good for both growth and dividend yield
- Excellent performance
- High return
Cons
- Low dividend yield
2. iShares S&P/TSX Capped Financials Index (XFN)
With a net asset of $1.3 billion, the iShares S&P/TSX Capped Financials Index ETF (XFN) launched in 2001, with the primary goal of long-term capital growth by following the footsteps of CEW, another ETF from iShares. It’s one of the best Canadian bank ETFs that focus on growth.
This ETF has a year-to-date MER of 0.61%, which is somewhat high. It also has a return of 22.15%.
XFN is market-weighted. Compared to other ETFs, XFN has a wide range of securities, reaching 28 in 2021. However, not all of them have a significant weight. In fact, its top 10 securities make up about 90% of its net assets.
The top 10 portfolio holdings for the S&P/TSX Capped Financials Index ETF as of September 16, 2021, are:
- RBC: 19.73%
- TD Bank: 16.05%
- Bank of Nova Scotia: 10.96%
- Brookfield Asset Management: 10.96%
- BMO: 8.90%
- Canadian Imperial Bank of Commerce: 7.05%
- Manulife Financial: 5.14%
- Sun Life Financial: 4.13%
- National Bank: 3.58%
- Intact Financial: 2.84%
Pros
- Great growth opportunity
- 28 holdings
- Large net asset
Cons
- High fees
3. RBC Canadian Bank Yield Index ETF (RBNK)
One of the key selling points of the RBC Canadian Bank Yield Index ETF is that its management fees are pretty low compared to other ETFs like ZWB and CIC. And the good news is that it also invests in the top Canadian banks, so you won’t miss out on much here.
RBNK had a 58.24% return in the last year, with an annualized return of 10.4%. Plus, RBNK’s distribution is higher than ZEB, boasting a dividend yield of 3.93%.
However, since RBNK is a new ETF, its risk rating is relatively high.
Unlike ZEB, RBNK’s holding weights aren’t close to each other. The portfolio holdings for RBNK as of September 16, 2021, are:
- Canadian Imperial Bank of Commerce: 24.80%
- Bank of Nova Scotia: 24.88%
- Royal Bank of Canada: 8.49%
- Toronto-Dominion Bank: 16.32%
- National Bank of Canada: 8.67%
- Bank of Montreal: 16.79%
Pros
- Good performance and distribution
- Low management fees
- Invests in the top Canadian banks
Cons
- High-risk rating
4. CI First Asset CanBanc Income Bank ETF (CIC)
The CI First Asset Income Bank ETF (CIC) holds stocks in the top five Canadian banks. The weights are almost equally distributed. Plus, this ETF sells covered call options to capitalize on its income, with six covered call options in its portfolio’s banks (read more about options trade in Canada).
As of 2021, CIC’s dividend yield is 3.91%. That’s marginally lower than other ETFs like BMO. The good news is that its performance is formidable, with yearly returns of 7.6% based on a dividend-adjusted CAGR of five years.
The portfolio holdings for CIC as of September 16, 2021, are:
- National Bank of Canada: 18.03%
- Royal Bank: 17.04%
- CIBC:16.58%
- Bank of Nova Scotia: 16.36%
- Bank of Montreal: 16.38%
- TD Bank: 15.56%
Pros
- Good returns
- Covered call options
- Includes the five top Canadian banks
- Moderate MER
Cons
- Low dividend yield
5. iShares Equal Weight Banc & Lifeco (CEW)
The iShares Equal Weight Banc & Lifeco ETF is owned by one of the biggest ETF issuers in the world. One thing that makes it different from other ETFs is that its funds aren’t made up of Canadian banks only.
By doing a quick analysis of its distribution, you’ll find that 58% of the funds are allocated to five of Canada’s big banks, with the remaining percent divided over life insurance companies and diversified financial companies at 38% and 3%, respectively.
This distribution is a double-edged sword. While it gives the ETF a higher potential growth when the banks stagnate, this makes it more volatile with a high-risk rating.
On a final note, keep in mind that this ETF is more suitable for growth rather than dividends. It has a promising dividend yield, but that shouldn’t put it at the top of your list if your goal is both growth and dividends. In addition, check out this top preferred shares, which, in turn, have fixed dividends.
CEW has an annual growth rate of 7.85% based on the last five years. The portfolio holdings for CIC as of September 16, 2021, are:
- Bank of Montreal: 9.87%
- CIBC: 9.92%
- RBC: 9.72%
- Bank of Nova Scotia: 9.59%
- Sun Life Financial Inc: 9.97%
- TD Bank: 9.45%
- IA Financial Inc: 10.49%
- Great West LifeCo Inc: 10.37%
- Manulife Financial Corp: 9.94%
- National Bank: 10.15%
Pros
- Good for both growth and dividend yield
- Excellent performance
- High return
Cons
- High fees
6. CI Canadian Banks Income Class (CIC)
The CI Canadian Banks Income Class ETF is considered the new version of the CI First Asset CanBanc Income Bank ETF. It was launched in 2020, and it invests in the top six Canadian banks. It had a return of 49.81% in the last year alone and a total annualized return of 9.94%.
What’s more, the ETF offers covered call options to boost income and combat volatility. CI Global Asset Management holds the right to sell call options to up to 25% of the common shares monthly.
On that note, CIC uses call options that are derivative contracts, meaning that they earn premiums.
In contrast to ZEB, CIC follows a quarterly payment model when it comes to dividends. On top of that, CIC has an MER of 0.80%, which translates to a fee of 8.00% per $1,000 asset annually.
The portfolio holdings for CIC as of September 16, 2021, are:
- National Bank of Canada: 18.03%
- Royal Bank: 17.04%
- CIBC:16.58%
- Bank of Nova Scotia: 16.36%
- Bank of Montreal: 16.38%
- TD Bank: 15.56%
Pros
- Includes the top six Canadian banks
- Good Return
- Call options with earning potential
Cons
- Quarterly dividends
- High MER
7. iShares Canadian Financial Monthly Income (FIE)
Similar to CEW, the iShares Canadian Financial Monthly Income ETF is a hybrid ETF with securities in banks, insurance companies, and diversified financials. Its funds encompass the following weights:
- 45.75% in banks
- 28.62% in insurance companies
- 9.01% in diversified financials
According to the company behind this ETF, the goal is to provide investors with a high return in the form of monthly cash values.
FIE has a dividend yield of 6.06%, which is pretty high compared to other ETFs on the list. The MER is high, too, reaching a value of 0.89%.
The portfolio holdings for FIE as of September 16, 2021, are:
- iShares S&P/TSX Cdn Prefr Shr ETF Comm: 20.71%
- iShares Core Canadian Corporate Bd ETF: 10.33%
- Canadian Imperial Bank of Commerce: 8.70%
- Royal Bank of Canada: 8.26%
- National Bank of Canada: 6.53%
- The Toronto-Dominion Bank: 6.41%
- Manulife Financial Corp: 6.34%
- Power Corporation of Canada: 6.22%
- Sun Life Financial Inc: 5.68%
- Bank of Montreal: 5.34%
Pros
- Diverse portfolio
- Excellent dividend yield
- Great growth potential
Cons
- High MER
- High-risk rating
8. BMO Covered Call Canadian Banks ETF (ZWB)
One of the primary reasons that could make you go for the BMO Covered Call Canadian Banks ETF (ZWB) is that you’ll be able to hold the securities of the nation’s five biggest banks, be it directly or through ZEB. Not to mention, you can make some extra cash using the available cover call options.
On top of that, the BMO Covered Call Canadian Banks ETF is managed actively, as opposed to ZEB. You can observe this by taking a look at the ETF’s MER, which stands at 0.72%. It’s higher than most other Canadian bank ETFs and even ZEB.
Taking performance into consideration, ZEB takes the lead with a performance of 15.48%, compared to just 15.13% for ZWB. Nevertheless, the higher distribution makes up a bit for this margin, so we wouldn’t say that it should be a reason for you not to consider ZWB. Just keep in mind that ZEB’s return is considerably better than ZWB’s.
The portfolio holdings for ZWB as of September 16, 2021, are:
- BMO Equal Weight Banks Index (ZEB): 27.23%
- Canadian Imperial Bank of Commerce: 13.10%
- Bank of Montreal: 12.60%
- Royal Bank of Canada: 12.18%
- Toronto-Dominion Bank: 11.42%
- National Bank: 12.33%
- Bank of Nova Scotia: 11.04%
Pros
- Actively managed
- Covered call options
- Good distribution
Cons
- Performance isn’t the best
Canadian Bank ETFs: A Guide to Canadian Bank ETFs
Canadian bank ETFs can be a great investment opportunity. Canada has a strong economy and a robust monetary policy, providing an excellent investment chance for all the nation’s residents (see also ‘Best ETFs Canada‘).
Benefits
There are countless perks of investing in Canadian ETFs, which include:
Low Investment Amounts
Most ETFs – see top real estate ETFs – have a low dollar amount which usually hovers around $30 or even less. This means that you can start investing right now, even if you have a limited budget.
Not to mention, you’ll be able to reinvest the dividends effortlessly, in opposition to investing in each bank directly.
Monthly Dividends
With the exception of CIC, many of the best Canadian bank ETFs offer monthly dividends instead of a dividend yield that’s paid on a quarterly basis.
Low Investment Cost
Most of the Canadian Bank ETFs are treated as just one trade, meaning that you get to hold shares in more than one bank with just a single purchase. It also means that you’ll pay commissions on a single trade, minimizing the costs of your investment. What makes things better is that some brokerages even offer ETFs for free.
Who Are Canadian Bank ETFs For?
Whether your goal is growth, dividend, or both, you should be able to find a Canadian bank ETF that’s suitable for you. The top Canadian bank ETFs can make an excellent source of predictable monthly income. They also make a great option if you’re still starting out. On the other hand, nothing stops you from diversifying your portfolio and, as oil prices drop, Oil ETFs and Canadian energy ETFs seem worth considering, too.
To illustrate, investing in individual stocks can be challenging if you don’t have much money to invest. Per contra, ETFs are easier to acquire, making them ideal for the accumulation stage.
Once your portfolio value flourishes, you can start investing in the banks directly after selling your ETF.
On a side note, you can create a replica of the ETF by buying each stock directly. There’s a catch, though; you’ll need to rebalance the stock weightings once or twice a year, at least if you want to keep your assets within the allocations you want.
How to Invest in Canadian Stocks
Investing in Canadian stocks can be a risky business if you don’t know what you’re doing. For example, undervalued stocks are priced below their actual market value and you can easily miss to identify them. However, if you do everything right, the results will blow you away.
Now, here’s how you can invest in Canadian stocks:
Create a New Online Brokerage Account
There are various online brokerage platforms in Canada – see ‘Best Online Brokerage‘ and ‘Best Robo Advisors‘ – which may range from independent discount brokers to large bank-owned brokerage firms.
We’d recommend that you opt for a discount broker. A discount broker can save you a massive amount of money that you’d otherwise spend on commissions and trading fees.
Pick an Investment Account
Generally speaking, there are two ways for you to invest in the Canadian stock market: registered and non-registered accounts.
Registered accounts are divided into three categories: Tax-Free Savings Accounts (TFSAs), Registered Education Savings Plans (RESPs), and Registered Retirement Savings Plan (RRSP). TFSAs hold the advantage of giving you tax-free returns whenever you invest. They’re also suitable for both short and long-term investment goals.
On the other hand, an RESP account is perfect for saving your kid’s post-secondary education premiums. As for RRSP accounts, these are primarily designed for retirement savings. Having one of these accounts enables you to contribute 18% of your previous year’s income, but there’s a limit, which, as of 2021, is $27,830.
Analyze Stocks
Before you decide to buy any stocks, you need to identify and analyze all of your options first. No matter your goal, it would help if you did a technical and fundamental analysis of the stocks. Technical analysis is all about forecasting and identifying which stocks are more promising by analyzing charts and historical price patterns.
On the other hand, Fundamental analysis focuses on analyzing the company’s data to determine its financial integrity, growth potential, and value.
Start Investing
Once you’ve analyzed stocks and figured out which ones are worth investing in, you can now start buying. And remember, there are no risk-free stocks; you’ll always be taking some sort of risk whenever you buy a stock in Canada.
Are Canadian Banks a Good Investment?
The short answer is yes, Canadian banks are a good investment, and one of the best ways to invest in them is with an ETF. The icing on top is that many Canadian bank ETFs invest in the big-six Canadian banks, which are:
- National Bank
- Royal Bank of Canada
- Toronto-Dominion Bank
- Bank of Nova Scotia
- Bank of Montreal
- Canadian Imperial Bank of Commerce
The Bottom Line
Alright, so that was our take on the best Canadian bank ETFs you can invest in.
Still can’t decide which ETF to go for? We can give you a few hints to make the choice easier for you.
If you need a diversified ETF, consider opting for the iShares Equal Weight Banc & Lifeco ETF (CEW). Its funds aren’t limited to banks, expanding your growth opportunities.
On the flip side, if your goal is to buy an ETF that holds shares in the top banks, the BMO Equal Weight Banks Index ETF (ZEB) would be your choice.
Of course, you can also consider investing through the BMO Covered Call Canadian Banks ETF (ZWB) if a high return is a priority for you.
