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7 Best Canadian Bank ETFs for May 2023

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

Whether you are a beginner or an 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 dividend 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 seven best Canadian Bank ETFs in May 2023.

Best Canadian Bank ETFs

The top picks for Canadian banking ETFs as of this writing are:

  • BMO Equal Weight Banks Index ETF (ZEB)
  • Horizons Equal Weight Canadian Banks ETF (HEWB)
  • BMO Covered Call Canadian Banks ETF (ZWB)
  • Hamilton Enhanced Canadian Bank ETF (HCAL)
  • iShares S&P/TSX Capped Financials Index ETF (XFN)
  • iShares Equal Weight Banc & Lifeco ETF (CEW)
  • iShares Canadian Financial Monthly Income ETF (FIE)

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 regularly.

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

Get a $50 free trade credit with Questrade.

1. BMO Equal Weight Banks Index ETF

The BMO Equal Weight Banks Index (ZEB) is an excellent choice if you want 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 December 8th, 2022):

ZEB Bank HoldingsAllocation
Royal Bank of Canada (RY)17.44%
National Bank of Canada (NA)17.35%
Toronto-Dominion Bank (TD)17.31%
Bank of Montreal (BMO)16.73%
Bank of Nova Scotia (BNS)15.76%
Canadian Imperial Bank of Commerce (CM)15.47%
Cash-0.04%

Some key facts for ZEB are:

  • Inception date: October 20, 2009
  • MER: 0.28%
  • Number of holdings: 7
  • Dividend yield: 4.01%
  • Dividend distribution: Monthly
  • Net asset: $2,997.61 million

ZEB’s annualized distribution yield of 4.01% is decent; however, you can earn a higher yield by holding 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 10.77% since its inception and, after gaining 39.28% in 2021, has cooled off for a modest loss of -4.47% in a challenging year in 2022.

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. Horizons Equal Weight Canada Banks Index ETF

  • Ticker Symbol: HEWB
  • Inception date: January 22, 2019
  • MER: 0.27%
  • Number of holdings: 6
  • Dividend yield: N/A
  • Distribution frequency: N/A
  • Net assets: $133 million

HEWB is another ETF that invests solely in the big six banks in Canada. This is a relatively new ETF, having only been introduced in 2019. 

This ETF has a relatively low MER of 0.27%, which means fees on $1,000 in assets would be about $2.70 per year. 

One drawback of investing in HEWB is that it currently does not pay a distribution which is rare for Canadian bank ETFs. 

This ETF has a medium risk rating and holds the following securities as of December 8th, 2022:

HEWB HoldingsAllocation
National Bank of Canada17.34%
TD Bank16.94%
 Royal Bank of Canada16.90%
Bank of Montreal16.85%
CIBC16.60%
Bank of Nova Scotia15.37%

HEWB has provided an annualized return of 11.04% since its inception and a -4.44% performance year to date.

Still, the lack of distribution will likely make this ETF less desirable to Canadian investors than other ETFs or owning these individual stocks instead.

3. BMO Covered Call Canadian Banks ETF

  • Ticker symbol: ZWB
  • Inception date: January 28, 2011
  • MER: 0.71%
  • Number of holdings: 41
  • Dividend yield: 6.84%
  • Distribution frequency: Monthly
  • Net asset: $2,805.65 million

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

Covered Call ETFs use covered call options to earn premiums, lower portfolio volatility, and potentially increase yield.

Compared to the 4.01% dividend yield for ZEB, ZWB had a distribution yield of 6.84% as of this writing.

Its management expense ratio is higher at 0.71%, which is equivalent to a fee of $7.10 per $1,000 investment per year.

ZWB holdings on December 8th, 2022, are:

ZWB HoldingsAllocation
BMO Equal Weight Banks Index ETF (ZEB)24.06%
RBC13.27%
National Bank13.20%
TD Bank13.17%
Bank of Montreal12.73%
Bank of Nova Scotia11.99%
CIBC11.77%

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

ZWB has an annualized return of 8.49% per year since inception and a 2022 flat return of -0.83%. 

While this ETF has a higher dividend yield than ZEB, ZEB has a higher annualized return of 10.99% since inception.

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

  • Ticker symbol: XFN
  • Inception date: March 23, 2001
  • MER: 0.61%
  • Number of Holdings: 29
  • Dividend yield: 3.30%
  • Distribution frequency: Monthly
  • Net assets: $1,407 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 December 8th, 2022, are:

XFN HoldingsAllocation
RBC20.48%
TD Bank18.17%
BMO9.48%
Brookfield Asset Management Inc Cl9.45%
Bank of Nova Scotia9.09%
CIBC5.88%
Manulife Financial Corp5.13%
Sun Life Financial Inc.4.11%
Intact Financial Corp4.00%
National Bank of Canada3.53%

XFN offers a lot more diversification since it’s not concentrated in only six 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 3.30%, although it does payout dividends monthly.

Its average annual return since inception is 9.44%, and it saw a modest return of 1.31% in 2022.

5. Hamilton Enhanced Canadian Bank ETF

Below are some of its key facts:

  • Ticker symbol: HCAL
  • Inception date: October 14th, 2020
  • MER: 0.65%
  • Number of holdings: 6
  • Dividend yield: 6.82%
  • Distribution frequency: Monthly              
  • Net assets: $383 million

HCAL is yet another Canadian ETF that holds all six of the major banks in different allocations. Hamilton ETFs is not as well-known of a brand name as the others on this list but is an up-and-coming financial services company based out of Toronto. 

This ETF holds 100% of its weight in the Hamilton Canadian Bank Mean Reversion Index ETF (HCA). Here are the weighted allocations for that ETF:

HCAL HoldingsAllocation
Bank of Nova Scotia27.1%
Canadian Imperial Bank of Commerce26.6%
Bank of Montreal26.3%
Royal Bank of Canada6.8%
National Bank of Canada6.7%
Toronto-Dominion Bank6.5%

With a yield of 6.82%, HCAL currently has one of the highest distribution yields of any Canadian bank ETF. 

This ETF is relatively new and has had a 25.28% total return since inception. The fund has outperformed the returns of the individual stocks of the big-six banks over that period.

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: 4.26%
  • Distribution frequency: Monthly
  • Net assets: $187 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 December 8th, 2022, are:

CEW HoldingsAllocation
Sun Life Financial Inc.10.22%
Manulife Financial Corp10.20%
 IA Financial Inc.10.12%
RBC10.05%
Bank of Nova Scotia10.03%
Toronto-Dominion Bank10.02%
National Bank of Canada9.98%
BMO9.63%
Great West LifeCo Inc.9.62%
CIBC9.52%

As of this writing, the dividend yield for CEW is 4.26%, slightly higher than XFN.

Its annualized return since inception is lower at 8.37%, and it has provided a modest return of just 1.95% over the past year.

7. iShares Canadian Financial Monthly Income ETF

  • Ticker symbol: FIE
  • Inception date: April 16, 2010
  • MER: 0.84%
  • Number of holdings: 27
  • Dividend yield: 7.10%
  • Distribution frequency: Monthly
  • Net assets: $899 million

The iShares Canadian Financial Monthly Income ETF qualifies as a financial/bank ETF as it provides exposure to the banking sector (51.86%), insurance (19.63%), and Diversified Financials (7.16%).

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

This ETF has a competitive 7.10% distribution yield but a high MER of 0.84%.

Its top-10 holdings on December 8th, 2022, are:

FIE HoldingsAllocation
iShares S&P/TSX Canadian Preferred ETF19.60%
iShares Canadian Corp Bond Index ETF10.44%
RBC8.99%
Bank of Montreal8.74%
CIBC8.05%
Toronto-Dominion Bank7.89%
Manulife Financial Corp6.79%
National Bank of Canada6.70%
Bank of Nova Scotia6.46%
Power Corporation of Canada3.41%

FIE has a medium risk rating, and its average annual return since inception is 6.98%.

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 using a no-commission broker like Wealthsimple Trade.

Questrade

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

Questrade offers other investment assets, including options, FX, stocks, bonds, mutual funds, GICs, CFDs, and precious metals.

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

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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 investment requirements.

You receive a $25 bonus when you open an account and deposit $200+.

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.

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

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Should I Invest in a 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 yearly.

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, Toronto-Dominion Bank, RBC, and several other stocks 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 highly fee-conscious, BMO’s ZEB currently has the lowest MER on the list at 0.28%, and its 4.13% 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 ZWB.

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

Related reading:

Editorial Disclaimer: The investing information provided here is for informational purposes only and is not intended as individual investment advice or recommendation to invest in any specific security or investment product. Investors should always conduct their own independent research before making investment decisions or executing investment strategies. Savvy New Canadians does not offer advisory or brokerage services. Note that past investment performance does not guarantee future returns.

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Author

Gravatar for Enoch Omololu, MSc (Econ)
Enoch Omololu, MSc (Econ)

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 is passionate about helping others win with their finances and has been writing about money matters for over a decade. He has been featured or quoted in Forbes, The Globe and Mail, Winnipeg Free Press, Wealthsimple, CBC News, Financial Post, Toronto Star, CTV News, Canadian Securities Exchange, Credit Canada, National Post, and many other personal finance publications. You can learn more about him on the About Page.

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.

5 thoughts on “7 Best Canadian Bank ETFs for May 2023”

  1. Gravatar for Omar

    Hi,
    I think that you should add HCAL to the list.
    Thanks.

  2. Gravatar for SLM

    Thanks for this article and all your content. I just subscribed; keep up the great work! Quick question: would you suggest adding bank stocks or for me, an ETF like ZEB to my new portfolio, to combat the upcoming uncertainty? I’ve read that with higher rates, the banks will obviously benefit, so to hedge any losses from an equity-heavy portfolio, it’s good to have some banks and REITs in there too. I am just starting out with upping my TFSA, so any advice would be great, thanks.

    • Gravatar for Enoch Omololu

      @SLM: Thanks for your feedback. I am unable to provide specific investment advice. That said, I prefer to use all-in-one ETFs like VGRO, VEQT, and other asset allocation ETFs as opposed to selecting individual stocks or even a bank-specific ETF. This way I can gain exposure to the “entire” stock market and it really doesn’t matter much what happens in the short term. It is likely that banks will do well in a higher rate environment and you could do well by adding on some banks…but the overall stock market should also rise alongside unless we slide into a recession.

  3. Gravatar for Barry Hardin

    Hello Enoch- great article. Are there any Canadian Bank ETFs that trade in the US?

    • Gravatar for Enoch Omololu, MSc (Econ)

      @Barry: I am not aware of any. Cheers

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