Best Financial ETFs in Canada: Growth + Income

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Dividend Earner

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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), there are different options to consider.

When it comes to funds or ETFs, you want to be aware of the MER and the constitution of the the fund as well as understand the strategy. For example, some funds pay a high 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 focus on the financial or the 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. Canada’s banking stocks are characterized by attractive yields and dividend payouts thus offering a good investment proposal to the investors.

A Financial ETF can provide an option to invest in the lucrative banking sector on one hand and gain a diversified exposure on the other. These ETFs eliminate the need to choose between different banks which now have differentiated business strategies and operate in diversified geographies.

Investors can find out about the investment objectives, the top ten holdings, distribution frequency (if any), cost and expenses associated with investing in these ETFs, etc. from this guide.

Best Financial ETFs

When looking at the Canadian financial ETFs, you have the choice to focus on just the major banks, the banking industry or the overall financial industry which includes life insurance and mortgage companies.

What makes it interesting to invest in a Canadian Bank ETF is the active management by the fund manager that can increase your income if income is what you seek. 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 makes for a set of core holdings for a Canadian retirement portfolio.

If you want more income than you need to become creative and either you start selling covered calls on your own or you let the Bank ETFs managers do that for you. 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
Best Financials ETF 2021
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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 dividend 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 an exposure to the performance of a portfolio of Canadian banks while earning call option premiums. The ETF primarily invests in securities of Canadian banks as well as 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 leading Canadian Banks’ shares. 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 you enter the price you want to pay.

I usually put a limit order using the market price just to avoid any blip from trading algorithm.

As it happens, there are many discount brokers 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.