Best Canadian Bank ETFs: 13 ETFs Analyzed For 2023

Dividend Earner

Dividend Earner

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6 min read Affiliate Disclosure

Canadian banks are one of the most popular investments for Canadians due to their stability and growth from the banking oligopoly they have.

There are a number of ways to invest in Canadian banks, and one of them is through exchange-traded funds or ETFs. While you can invest in individual banks, picking dividend stocks is not for everyone, and ETFs can simplify your investing decisions.

Unfortunately, there are more Canadian bank ETF offerings than Canadian bank stocks to invest in when you count only the 6 major banks.

Ticker Ticker Company Market Cap P/E Yield Aristocrat Graph SectorID IndustryID
RY TSE:RY Royal Bank 210.60 13.71 3.81 YES 1 7 21
TD TSE:TD TD Bank 134.06 12.79 5.35 YES 1 7 21
BMO TSE:BMO Bank of Montreal 88.64 14.93 5.10 YES 1 7 21
BNS TSE:BNS Scotia Bank 79.33 10.77 6.57 YES 1 7 21
CM TSE:CM CIBC 63.73 10.30 5.33 YES 1 7 21
NA TSE:NA National Bank 39.61 12.08 3.78 YES 1 7 21

List Of Canadian Banks ETFs

Screening for ETFs covering the Canadian banks led to a decent selection of ETFs focused on banks and financials. The ETFs also have various investment goals between income and growth.

Interestingly enough, some of the ETFs are actually index ETFs following the Solactive Canada Bank Yield TR Index, or Solactive Canadian High Dividend Yield Index.

What Are Index ETFs

In simple terms, the ETF is build to follow a specific index, or benchmark, as identified by another governing body. There are some very popular indexes that every investor will be familiar with but there are also some very specific indexes. Solactive tracks over 6,000 indexes if you can imagine.

Don’t confuse index with index investing as the latter is about the broad indexes (ie the popular ones) and not about stock picking one of the 6,000 indexes from Solactive.

What Are Covered Calls?

A covered call is a way to generate extra income from your holdings by selling options. The downside is usually limited with stable stocks like the banks, and utilities.

You’ll find many ETFs with banks leverage covered calls as a strategy to keep the income high.

The Top Canadian Bank ETFs

Before diving into the ETFs and their details, here is what my annual rate of return has been for my bank holdings after ten years of holding them with all dividends re-invested. Those are approximate total returns at the time of writing, but you can see the up-to-date return on my portfolio page.

I am sharing those returns to put the ETF returns in perspective as sometimes, you might just want to hold the banks and call it a day.

We are going to separate the Canadian banks’ ETFs from the financial ETFs as the strategy and approach differ. You will see that not many ETFs have passed the 5-year mark, which makes it difficult to compare. With that said, let’s see what we can do.

Canadian Bank Only ETFs

It’s a choice between covered calls and index-like ETFs with some twist. HCA advertises itself as the best from a performance perspective but it’s too new to see what it does long term.

If you compare it with my bank holding, you can do better on your own and save the MER unless you want a higher income. Canadian banks are easy to invest in.

If you want higher income with Canadian banking investments, the ZWB BMO covered call ETF is your best choice, otherwise I would go with ZEB for now as a proxy to investing in individual bank stocks.

Canadian Financials ETFs

These following ETFs include Canadian banks but it also includes many other financial institutions. It’s another way to get exposed to banks but also a broader sector.

From a rate of return perspective, it’s not much better than investing in the banks and the yield isn’t any better either unless you really focus on covered call ETFs.

While HEF looks more appealing than FIE, I prefer to go with the higher NAV and select FIE as the best income Canadian financials ETF.

ZWB – BMO Covered Call Canadian Banks ETF

The other holdings are pretty new and pretty small in terms of NAV to get started with and have not demonstrated any greater benefits. At this point, without more data from the ETF strategy over time, we can only speculate on the potential performance.

For higher bank income, this is your go-to ETF.

ZEB – BMO Equal Weigth Banks Index ETF

If you are not interested in choosing which bank to hold and deciding on when to buy a bank, this ETF is perfect as a proxy to the banks with a similar yield.

FIE – iShares Canadian Financial Monthly

If you are worried about just holding the six big banks, this financial ETF is the best option based on the historical data points.

There is no distribution growth, though; it’s a pure income play as you lose purchasing power over many years. Be mindful of how your income grows in retirement to keep up with inflation.

However, do consider Canoe EIT Income Fund as a similar investment.

Why Invest In Canadian Bank ETFs?

As a Canadian, the banks are seen as the foundation of our financial system and have proven themselves to be stable and resilient back in 2008 during the financial crisis.

Unless you got started with investing by doing crypto, chances are you have some banks in your portfolio if you buy stocks. If you do index investing, you have banks since they are prominent on the TSX.

More importantly, you get the best of both world. You get a safe and growing investment with a decent yield.

How To Buy ETFs?

To buy a Canadian Banks ETF, you need a discount broker as ETFs trade like stocks on a stock exchange for ETFs.

Once setup, it’s a pretty simple trade process. It’s jut like buying or selling stocks. You specify the number of shares you want to buy from the selected ETF and whether you want to pay the market price or you enter the price you want to pay.

As it happens, there are many trading platforms that offer access to free ETFs and you should use a discount broker with free ETFs if you can. Questrade is one of those discount brokers with free ETFs.

FAQ on Covered Call ETFs

Is a Canadian Banks ETF a good investment?

The short answer is yes. It’s one of the best investment to build a portfolio foundation.

How are Canadian Banking ETFs taxes in Canada

It follows the same tax rules as ETFs and other equities.

You may have to pay capital gains on the appreciation, and you get a T3 for all the distributions reported by the ETF. If you have experience with REITs, it’s very similar to an ETF.

The short is that you may have dividends, capital gains, and some return of capital depending on the transactions in the ETF.