Canadian Financial ETFs can provide a higher yield than a broader Canadian index ETF or some dividend ETFs. Depending on your goals (portfolio accumulation or retirement income), different options exist within the ETF world of investing.
When it comes to funds or ETFs, you want to be aware of the MER and the constitution of the fund and understand the strategy. For example, some funds pay a higher yield than the stocks they hold, and it has to do with the active nature of the fund, which leads to a higher MER.
What is a Financial ETF?
A Financial ETF is an ETF (Exchange Traded Fund) that focuses on the financial or banking sector. Canadian Financial ETFs are a good way to invest in Canada’s banks since the banks play a major role in the Canadian economy. Attractive yields and dividend payouts characterize Canada’s banking stocks, thus offering investors a good investment proposition.
A Financial ETF can provide an option to invest in the lucrative banking sector and gain diversified exposure. These ETFs eliminate the need to choose between banks that now have differentiated business strategies and operate in diversified geographies.
This guide can inform investors about the investment objectives, the top ten holdings, distribution frequency (if any), cost and expenses associated with investing in these ETFs, and more.
Best Financial ETFs
When looking at Canadian financial ETFs, you can focus on the major banks, the banking industry or the overall financial industry, including life insurance and mortgage companies.
What makes it attractive to invest in a Canadian Bank ETF is the active management by the fund manager, which can increase your income if you seek income. If you were to just buy the 6 Big Banks on your own, you would have a dividend yield average of 4.5% with an expected dividend growth of approximately 8%. It often represents the core holdings of a Canadian retirement portfolio.
If you want more income, you need to become creative and either start selling covered calls by yourself or get a covered called ETF. I believe it’s a better option than buying into high-flying dividend yield stocks since they only fly high for a short time.
| wdt_ID | ETF | Industry | MER | Yield | Net Assets |
|---|---|---|---|---|---|
| 1 | HXF | Financials | 0.28 | 3.87 | 20M |
| 2 | ZWB | Big Banks | 0.72 | 5.05 | 1,844M |
| 3 | CIC | Big Banks | 0.84 | 4.46 | 150M |
| 5 | HEF | Financials | 0.83 | 5.56 | 15M |
| 6 | XFN | Financials | 0.61 | 2.99 | 1,039M |
| 7 | FIE | Financials & REITs | 0.97 | 7.02 | 653M |
| 8 | ZEB | Big Banks | 0.62 | 3.77 | 1,347M |
| 9 | CEW | Big Banks & Insurance | 0.60 | 2.89 | 148M |
FIE – iShares Canadian Financial Monthly Income
iShares Canadian Financial Monthly Income ETF comprises of a diversified portfolio consisting primarily of common shares, preferred shares, corporate bonds and income trust units from the Canadian financial sector. The ETF seeks to maximize investors’ total return in the form of distributions and capital appreciation and provides a stable stream of monthly cash distributions. It has a medium risk rating.
HEF – Horizons Enhanced Income Financials
Horizons Enhanced Income Financials ETF invests in a portfolio of equity and equity-related securities of Canadian companies in the banking, finance and financial services sectors. The ETF provides investors with monthly distributions of dividends and call option income. HEF also writes covered call options on 100% of the portfolio securities to mitigate downside risk and generate income. Horizons ETFs Management (Canada) Inc. is the fund manager.
ZWB – BMO Covered Call Canadian Banks
BMO Covered Call Canadian Banks ETF seeks to provide exposure to the performance of a portfolio of Canadian banks while earning call option premiums. The ETF primarily invests in securities of Canadian banks and writes covered call options. The options are rolled forward upon expiry. This ETF is designed for investors looking for higher income from equity portfolios, while the call option writing reduces volatility. BMO Asset Management is the fund manager, and this ETF belongs to the specialty income sector. The ETF distributes monthly income and has a medium risk rating.
CIC – First Asset CanBanc Income Class
First Asset CanBanc Income Class ETF seeks to lower the overall volatility of portfolio returns by owning a portfolio of shares of leading Canadian banks. The fund’s investment objective is to provide shareholders with quarterly distributions and the opportunity for capital appreciation. The Fund sells call options on a maximum of 25% of the common shares of each bank held in the portfolio as part of its investment strategy each month. The ETF is 100% exposed to the financial sector.
HXF – Horizons S&P/TSX Capped Financials Index
Horizons S&P/TSX Capped Financials Index ETF seeks to replicate the performance of the S&P/TSX Capped Financials Index net of expenses. The S&P/TSX Capped Financials Index is designed to measure the performance of equity securities of the Canadian financial sector included in the S&P/TSX Composite Index. Horizons ETFs Management (Canada) Inc. is the fund manager.
ZEB – BMO S&P/TSX Equal Weight Banks Index
BMO Equal Weight Banks Index ETF has been designed to replicate the performance of the Solactive Equal Weight Canada Banks Index, excluding expenses. The fund seeks to invest and hold the Constituent Securities of the index. BMO Asset Management is the fund manager.
The ETF’s objective is growth and income equity. The ETF distributes monthly income and has a medium risk rating. It is designed for investors looking for growth solutions and provides 100% exposure to Canadian bank stocks.
XFN – iShares S&P/TSX Capped Financials
iShares S&P/TSX Capped Financials ETF seeks long-term capital growth by replicating the performance of the S&P/TSX Capped Financials Index, net of expenses. The ETF provides an exposure to the Canadian financial companies. BlackRock has rated the volatility of this ETF as medium.
CEW – iShares Equal Weight Banc & Lifeco ETF
iShares Equal Weight Banc & Lifeco ETF comprises of a diversified and equally weighted portfolio of shares of the largest banks and life insurance companies in Canada. These banks have a minimum market capitalization of $5 billion, while Canadian life insurance companies have a minimum $1.5 billion as market capitalization value. The ETF provides an exposure to specific subsectors of the Canadian financial services industry while giving a chance to earn regular monthly dividend income to its unitholders. BlackRock has rated the volatility of this ETF as medium to high and it is the perfect choice for investors seeking long-term capital growth.
How To Buy Financial ETFs
To buy a financial ETF, you need a discount broker, as ETFs trade like stocks on a stock exchange for ETFs. You specify the number of shares you want to buy from the selected ETF and whether you want to pay the market price or enter the price you want to pay.
I usually put a limit order using the market price just to avoid any blip from the trading algorithm.
There are many discount brokers that offer access to free ETFs, and you should use one if you can. Questrade is one of those discount brokers.