7 Best Canadian Bank ETFs for 2021

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by Enoch Omololu

Updated

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Canadian banks make up a significant portion of investment portfolios in Canada.

Whether you are a beginner or experienced investor, you probably have some exposure via direct bank stock holdings or through a Canadian bank ETF

Even the broader financial ETFs and indices with diversified holdings in the insurance and financial services sectors are often heavily weighted in bank stocks.

This affinity to invest in Canadian banks is due to several factors including their robust dividends yields (income generation) with consistent growth (Canadian Dividend Aristocrats) and solid price appreciation over time.

These Canadian banks are also very stable financially and rank as some of the best in the world.

Lastly, there is always the inherent “home bias” for Canadians to buy stocks and companies we are familiar with.

Read on to learn about the 7 best Canadian Bank ETFs in 2021.

Best Canadian Bank ETFs

While you can easily purchase shares (stocks) of Canadian banks online using a discount brokerage account, there is merit to purchasing an ETF portfolio that holds them all in one place.

For example, if you’d rather not bother about portfolio rebalancing or want to invest small amounts of money in portions of bank shares on a regular basis.

That said, even beginners can now buy stocks for free and in small slices using Wealthsimple Fractional Shares.

Get a $50 cash bonus with Wealthsimple Trade.

The top Canadian banking ETFs as of this writing are:

  • BMO Equal Weight Banks Index ETF (ZEB)
  • CI First Asset CanBanc Income Class ETF (CIC)
  • BMO Covered Call Canadian Banks ETF (ZWB)
  • RBC Canadian Bank Yield Index ETF (RBNK)
  • iShares S&P/TSX Capped Financials Index ETF (XFN)
  • iShares Equal Weight Banc & Lifeco ETF (CEW)
  • iShares Canadian Financial Monthly Income ETF (FIE)

1. BMO Equal Weight Banks Index ETF

The BMO Equal Weight Banks Index (ZEB) is a great choice if you are looking for exposure to Canada’s six biggest banks.

This ETF is designed to track the performance of the Soloactive Equal Weight Canada Banks Index and is currently invested as follows (as of July 30, 2021):

ZEB Bank HoldingsAllocation
Canadian Imperial Bank of Commerce (CM)17.94%
Bank of Montreal (BMO)17.26%
National Bank of Canada (NA)16.88%
Royal Bank of Canada (RY)16.68%
Toronto-Dominion Bank (TD)15.64%
Bank of Nova Scotia (BNS)15.12%
Cash0.47%

Some key facts for ZEB are:

  • Inception date: October 20, 2009
  • MER: 0.28%
  • Number of holdings: 7
  • Dividend yield: 3.33%
  • Dividend distribution: Monthly
  • Net asset: $2,084.09 million

ZEB’s annualized distribution yield of 3.33% is decent, however, you can earn a higher yield by holding the individual stocks.

You pay a 0.28% Management Expense Ratio (MER) which translates to $2.80 per year per $1,000 investment.

ZEB has had an annualized return of 11.95% since inception. It has seen significant growth in the last year following the pandemic slump, with an eye-popping 55.24% return.

Not surprisingly, this ETF has a “medium” risk rating. This is to be expected given you are investing in only six stocks which means limited diversification.

2. CI Canadian Banks Income Class ETF

  • Ticker Symbol: CIC
  • Inception date: August 18, 2020
  • MER: 0.80%
  • Number of holdings: 12
  • Dividend yield: 3.68% (5.83% total including option yield)
  • Distribution frequency: Quarterly
  • Net assets: $196.967 million

Like ZEB, the CI Canadian Banks Income Class ETF also invests in Canada’s 6 largest banks. In addition, it uses covered call options to minimize volatility and increase income.

CI Global Asset Management can sell call options on up to a maximum of 25% of the common shares of each bank held each month.

Increased active management strategy by this ETF translates to an MER of 0.80% which is $8.00 in fees per $1,000 asset per year. This fee is 20 basis points higher than the MER for ZEB.

This ETF has a medium risk rating and holds the following security as of August 3, 2021:

CIC HoldingsAllocation
National Bank of Canada17.34%
Royal Bank of Canada16.71%
CIBC16.48%
Bank of Nova Scotia16.36%
Bank of Montreal16.31%
TD Bank15.98%

In addition, it held various call options for each bank.

Unlike ZEB, CIC pays dividends on a quarterly basis.

CIC has provided an annualized return of 9.94% since its inception and 49.81% in the last year.

The call options used by CIC are derivative contracts that earn premiums. Since they hold the underlying asset, if the call buyer exercises their option because it has moved “into-the-money” CI can simply offer them shares from its holdings (i.e. it is covered).

Covered call writing investment strategies work best in a market where price action is sideways or advancing gradually.

3. BMO Covered Call Canadian Banks ETF

  • Ticker symbol: ZWB
  • Inception date: January 28, 2011
  • MER: 0.72%
  • Number of holdings: 34
  • Dividend yield: 5.82%
  • Distribution frequency: Monthly
  • Net asset: $2,232.10 million

The BMO Covered Call Canadian Banks ETF also invests in Canadian banks (top-six) and holds another Canadian bank ETF, ZEB.

Similar to CIC, ZWB uses covered call options to earn premiums, lower portfolio volatility, and potentially increase yield.

Compared to the 3.33% dividend yield for ZEB, ZWB had a distribution yield of 5.82% as of this writing.

Its management expense ratio is higher at 0.72% which is equivalent to a fee of $7.20 per $1,000 investment per year.

ZWB holdings on July 30, 2021, are:

ZWB HoldingsAllocation
BMO Equal Weight Banks Index ETF (ZEB)27.23%
CIBC13.10%
Bank of Montreal12.60%
National Bank12.33%
RBC12.18%
TD Bank11.42%
Scotiabank11.04%

It also held several call options with various expiration dates and strike prices.

ZWB has an annualized return of 9.38% per year since inception and 44.43% in the last year alone.

While this ETF has a higher dividend yield than ZEB, ZEB has a higher annualized return of 11.59% since inception and 55.24% in the last year.

4. RBC Canadian Bank Yield Index ETF

If the high management fees for CIC and ZWB are not to your taste, the RBNK ETF also invests in the big six banks while charging a lower fee.

Below are some of its key facts:

  • Ticker symbol: RBNK
  • Inception date: October 2017
  • MER: 0.33%
  • Number of holdings: 6
  • Dividend yield: 3.83%
  • Distribution frequency: Monthly              
  • Net assets: $170.44 million

The weights allotted to the different bank stocks are not ‘equal’ or close. As of August 3, 2021, RBNK holdings were:

RBNK HoldingsAllocation
Canadian Imperial Bank of Commerce26.7%
Bank of Nova Scotia23.7%
Royal Bank of Canada17.0%
Toronto-Dominion Bank15.7%
National Bank of Canada8.5%
Bank of Montreal8.5%

With a yield of 3.93%, RBNK currently has a higher distribution than ZEB.

That said, its 10.4% annualized return since inception is lower, although it again beats ZEB with a 58.3% vs. 55.24% return in the last year.

RBNK is a relatively new ETF and has a medium-high risk rating.

5. iShares S&P/TSX Capped Financials Index ETF

  • Ticker symbol: XFN
  • Inception date: March 23, 2001
  • MER: 0.61%
  • Number of Holdings: 28
  • Dividend yield: 2.75%
  • Distribution frequency: Monthly
  • Net assets: $1,551.25 million

The iShares S&P/TSX Capped Financials Index is a Financial ETF that provides exposure to Canadian financial companies including banks and insurance firms.

XFN’s top-10 holdings as of August 3, 2021, are:

XFN HoldingsAllocation
RBC19.65%
TD Bank16.63%
Brookfield Asset Management Inc Cl10.82%
Scotiabank10.36%
BMO8.78%
CIBC7.03%
Manulife Financial Corp5.09%
Sun Life Financial Inc.4.15%
National Bank of Canada3.53%
Intact Financial Corp2.80%

XFN offers a lot more diversification since it’s not concentrated in only 6 stocks.

It has a medium risk rating and comparable MER at 0.61, equivalent to a $6.10 fee per $1,000 investment per year.

The dividend yield for this ETF is significantly lower at 2.75%.

Its average annual return since inception is 9.82% and in the last year, it saw a 47.88% total return.

6. iShares Equal Weight Banc & Lifeco ETF

The iShares Equal Weight Banc & Lifeco ETF is another financial ETF with bank and life insurance stock holdings.

  • Ticker symbol: CEW
  • Inception date: February 6, 2008
  • MER: 0.61%
  • Number of holdings: 10
  • Dividend yield: 3.08%
  • Distribution frequency: Monthly
  • Net assets: $215.87 million

CEW provides access to a diversified portfolio with the largest banks and life insurance companies and pays regular monthly dividends.

Its holdings as of August 3, 2021, are:

CEW HoldingsAllocation
IA Financial Inc.10.30%
Great West LifeCo Inc.10.14%
Sun Life Financial Inc.10.06%
National Bank of Canada10.05%
CIBC9.93%
Manulife Financial Corp9.89%
Toronto-Dominion Bank9.83%
Scotiabank9.82%
BMO9.79%
RBC9.72%

As of this writing, the dividend yield for CEW is 3.08%, slightly higher than XFN.

Its annualized return since inception is lower at 8.86%, however, it generated a 51.35% total return in the last year.

7. iShares Canadian Financial Monthly Income ETF

  • Ticker symbol: FIE
  • Inception date: April 16, 2010
  • MER: 0.89%
  • Number of holdings: 27
  • Dividend yield: 6.06%
  • Distribution frequency: Monthly
  • Net assets: $917.39 million

The iShares Canadian Financial Monthly Income ETF qualifies as a financial/bank ETF as it provides exposure to the banking sector (45.75%), insurance (28.62%), and Diversified Financials (9.01%).

It seeks to “maximize total return and to provide a stable stream of monthly cash distributions”.

This ETF has a competitive 6.06% distribution yield and a high MER of 0.89%.

Its top-10 holdings on August 3, 2021, are:

FIE HoldingsAllocation
iShares S&P/TSX Canadian Preferred ETF20.98%
iShares Canadian Corp Bond Index ETF10.57%
CIBC8.74%
RBC8.29%
Toronto-Dominion Bank6.69%
National Bank of Canada6.49%
Manulife Financial Corp6.33%
Power Corporation of Canada5.81%
Sun Life Financial Inc.5.75%
Bank of Montreal5.31%

FIE has a medium risk rating and its average annual returns since inception is 8.32%.

How To Buy Canadian Bank ETFs in Canada

There are several options for retail investors who want to buy and sell Canadian bank ETFs.

If you already have a brokerage account with your bank (e.g. TD Direct Investing or Scotia iTrade), you can find these ETFs easily using their tickers.

Cost-conscious investors can save on trading commissions by using a no-commission broker like Wealthsimple Trade.

Wealthsimple Trade

This Canadian brokerage platform allows you to buy and sell ETFs and stocks with no trading fees. It is available on desktops and smartphones and has no minimum investments requirements.

You receive a $50 cash bonus when you open an account here.

Wealthsimple Trade also offers fractional share trading, making it easy to buy small portions of stocks if you don’t want to buy an entire share.

Learn more in this Wealthsimple Trade review.

Canadian investors who want to buy ETFs, stocks, as well as dabble in options and currency trading can use Questrade to save on commissions.

Questrade: This independent brokerage platform offers free ETF purchases and you pay $4.95 – $9.95 per trade when you sell.

New clients get $50 in free stock and ETF trades when they open an account here and fund it with $1,000 or more.

Get more details in this Questrade review.

Should I invest in Canadian Bank ETF?

Whether to invest using a Canadian Bank ETF is a choice you must make depending on your investment objectives, confidence with asset allocation, rebalancing, and your comfort level with paying investment fees.

Several of the best Canadian Bank ETFs on this list comprise the biggest 6 banks.

Ideally, you could gain exposure to these banks by simply replicating your preferred bank ETF and buying the six stocks directly yourself.

With no-commission stock trading, you don’t pay trading fees and also save the management fee of 0.60% or higher every year.

The downside to this DIY approach is that you will need to rebalance the stock weightings 1-2 times a year to keep things within your desired allocation.

Even investors with a small account will be able to try this DIY approach soon by using fractional share trading.

As of this writing, only Toronto-Dominion Bank and RBC are eligible for fractional orders on Wealthsimple Trade.

If you are looking to generate regular income from Canadian bank stocks but aren’t so sure you can manage the hassle of rebalancing, a Canadian bank ETF is definitely worth checking out.

These ETFs can also help to increase your portfolio diversification (several stocks as opposed to holding just 1-2 stocks).

Enhanced diversification reduces portfolio volatility and could potentially increase your overall returns.

An even better way to protect your investments from the volatile swings of the stock market is to use an asset allocation ETF.

Asset allocation ETFs are self-rebalancing and hold thousands of securities with global exposure and diversification.

Some popular examples are VGRO, VBAL, VEQT, ZBAL, and ZGRO.

What is the Best Canadian Bank ETF?

The best Canadian bank ETF will vary depending on your specific needs.

If you are extremely fee-conscious, RBNK currently has the lowest MER on the list at 0.32%, and its 3.93% dividend yield is one of the best (for bank ETFs that are not using covered calls). Its returns in the last year are also exceptional.

Investors who want to maximize the monthly or quarterly income or distribution may favour a covered-call strategy bank ETF like CIC or ZWB.

While these funds may lag in total return in performance during an extended bullish run, you enjoy good dividends payouts, and there is some downside protection.

Related reading:

7 Best Canadian Bank ETFs for 2021

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Author

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Enoch Omololu

Enoch Omololu is a personal finance expert and a veterinarian. He has a master’s degree in Finance and Investment Management from the University of Aberdeen Business School (Scotland) and has completed several courses and certificates in finance, including the Canadian Securities Course. He also has an MSc. in Agricultural Economics from the University of Manitoba and a Doctor of Veterinary Medicine degree from the University of Ibadan. Enoch has a passion for helping others win with their personal finances and has been writing about money matters for over a decade. His writing has been featured or quoted in the Toronto Star, The Globe and Mail, MSN Money, Financial Post, Winnipeg Free Press, CPA Canada, Credit Canada, Wealthsimple, and many other personal finance publications.

His top investment tools include Wealthsimple and Questrade. He earns cash back on purchases using KOHO, monitors his credit score for free using Borrowell, and earns interest on savings through EQ Bank.

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