The Canadian energy and banking sectors dominate the TSX market capitalization, being some of Canada’s most longstanding and profitable industries.
Today, with inflation at all-time highs and the threat of multiple rate hikes on the horizon, these energy and bank stocks are again poised to outperform in 2022 after already doing so in 2021.
Investors seeking to gain exposure can either choose to buy individual energy and bank stocks or buy a sector exchange-traded fund (ETF) that holds them all. Thankfully, BMO Global Asset Management provides a set of low-cost ETFs that offer easy sector exposure. Let’s take a look at my favourites!
Bank sector ETF
Canada’s so-called Big Six banks include the Royal Bank of Canada, Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, Bank of Nova Scotia, Bank of Montreal, and National Bank of Canada.
Together, these six banks form form an oligopoly of sorts, enjoying little outside competition, strong customer loyalty, and ever increasing revenues. All six of the banks consistently beat earnings guidance, and have a history of raising their generous dividend payouts.
Investors can own all six banks with a single ticket by buying BMO S&P/TSX Equal Weight Bank Index ETF (TSX:ZEB). ZEB currently trades at $39.75 per share, making it a very capital efficient way of buying a portfolio of otherwise pricy bank stocks.
ZEB currently costs a management expense ratio (MER) of 0.28%, which works out to around $28 in fees annually for a $10,000 account. ZEB also pays a generous distribution yield of 3.40%, which is the average of all the bank’s dividend payments.
Energy sector ETF
Inflation means higher commodity prices, whether it be oil, petrol, or natural gas. For energy sector companies, this means increased revenues and the value of assets on their balance sheet, which trickles down into a higher share price and dividends for investors.
There is an easy way to own the TSX energy sector with one ticker — BMO Equal Weight Oil & Gas Index ETF (TSX:ZEO). ZEO holds a total of 11 oil & gas stocks from Canada’s energy sector in equal allocations. ZEO currently costs $61.06 per share, making it accessible for getting energy sector exposure.
ZEO’s holdings include Tourmaline Oil, Arc Resources, Imperial Oil, Keyera, Cenovus Energy, TC Energy, Enbridge, Pembina Pipeline, Canadian Natural Resources, and Suncor Energy. ZEO has an MER of 0.61% and pays out a distribution yield of 2.95%.
The Foolish takeaway
BMO offers some fantastic, well-designed ETFs that offer easy exposure to hot TSX sectors. Investors looking to “tilt” their portfolios to the current macro-economic environment should consider energy and banking sector ETFs like ZEO and ZEB. For a decently low management expense ratio, you can do away with the cost and hassle of picking and re-balancing individual stocks.
