Canadian Bank ETFs: An Easy Way to Invest in the Big 6

For long-term investing, ZEB is a good bet. If you expect the bank stocks to be depressed in the near term, you can consider ZWB.

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Big Canadian bank stocks have been solid long-term investments, making their investors wealthier over time. Importantly, they have been reliable income generators as well. They just reported their quarterly results over the last week or so.

Some have moved higher, while others declined because of the recent results. That said, the volatility has still been very bearable with the biggest discrepancy not much greater than 3% in a day. Typically, those that have dipped on the day of the report ended up being scooped up in the following days, which suggests investors are picking up the stocks potentially for the higher dividend yields from the depressed stock prices.

If you don’t want to guess which stock would do well, you can easily invest in the Big Six Canadian banks via Canadian bank exchange-traded funds (ETF). Here are some ETFs that look interesting.

Equal-weight Canadian bank ETF

BMO Equal Weight Banks Index ETF (TSX:ZEB) has declined almost 19% from its peak in 2022. It provides pure exposure to the big Canadian banks. Specifically, it targets an equal-weight exposure to the Big Six Canadian bank stocks. Its largest position, which is also my favourite bank stock right now, is Toronto-Dominion Bank. TD stock makes up about 17.3% of the fund, while its smallest position is Royal Bank of Canada, which makes up roughly 16% of the fund.

ZEB ETF’s net asset stands at approximately $3.88 billion, and its management expense ratio (MER) is 0.28%. You can’t go wrong with this fund as the bank stocks are relatively cheap to their historical levels. The ETF also provides good income with an annualized distribution yield of about 5.2%.

Covered call Canadian banks ETF

If you want greater income potential, you can consider BMO Covered Call Canadian Banks ETF (TSX:ZWB). It currently offers an annualized distribution yield of about 7.5% thanks to its use of call options. Because of this active management component, its MER is higher at 0.71%.

ZWB’s net asset value is about $2.8 billion, with 23% exposure to ZEB as well as individual positions of about 12-13% of the fund in each of the Big Six Canadian bank stocks.

The ZWB ETF has declined about a similar percentage as ZEB — it’s down about 18% from its peak in 2022. From writing covered calls, ZWB could provide more income when the underlying bank stocks remain depressed. However, the options also limit the upside.

Financial monthly income ETF

iShares Canadian Financial Monthly Income ETF (TSX:FIE) provides more diversified financial services sector exposure than the other two ETFs. Other than having about 37% exposure across the Big Six Canadian bank stocks, it also has a 19% exposure to preferred shares via iShares S&P/TSX Canadian Preferred Share Index ETF and 10% in corporate bonds via iShares Core Canadian Corporate Bond Index ETF.

For its greater diversification and ownership in other funds, the FIE ETF also has a higher MER of 0.91%. Its distribution yield is about 7.1%, likely thanks to its exposure to preferred stocks that are a source of relatively high fixed income. FIE’s net asset stands at approximately $916.3 million.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng has positions in Royal Bank Of Canada and Toronto-Dominion Bank. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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