I think $10,000 is the perfect amount to start building a long-term position in Canadian bank stocks. It’s enough to make a meaningful impact on your retirement portfolio but still manageable to diversify properly.
That said, you don’t need to go out and buy each of the Big Six bank stocks individually. There are several exchange-traded funds (ETFs) that do the heavy lifting for you—giving you broad exposure in a single trade with built-in diversification.
If I were putting $10,000 to work today, I’d focus on Hamilton Enhanced Canadian Bank ETF (TSX:HCAL). It offers targeted exposure to the Big Six banks but with a twist. Here’s why I like it.
HCAL: Portfolio construction
To understand how HCAL works, it helps to first look at the benchmark it follows—Solactive Equal Weight Canada Banks Index.
This index holds all six of the Big Canadian Banks, and it gives each one an equal share of the portfolio. That means no single bank—big or small—gets more weight than the others. The index is rebalanced regularly, which means trimming the outperformers and adding to the underperformers. That effectively builds in a buy low, sell high discipline.
HCAL is a passive ETF, so it doesn’t try to pick winners or time the market. It simply buys and holds the same six banks in the same proportions as the index.
For investors, this makes HCAL a simple and balanced way to invest in Canada’s entire banking sector. There are always some banks doing better than others in any given year, but over the long term, all six are solid performers. With HCAL, you get exposure to all of them—without needing to guess which one will lead next.
HCAL: Leveraged exposure
Unlike traditional ETFs, HCAL uses light leverage to increase both income and growth potential.
Instead of limiting itself to the cash it holds, HCAL borrows modestly—investing up to 125% of its net asset value (NAV) in the Big Six Canadian banks. That means with a $10,000 investment, you’re actually getting exposure to $12,500 worth of Canadian bank stocks.
This added exposure helps boost your dividend income and amplifies total returns when the sector performs well. Of course, the flip side is more volatility. Since you’re effectively borrowing to invest, both the gains and losses can be magnified compared to traditional bank ETFs.
Still, for investors who can stomach the short-term swings, this structure offers a higher-reward alternative with more efficient use of your capital.
HCAL: Monthly income
When it comes to income, HCAL doesn’t disappoint. The Big Six Canadian banks already offer solid dividend yields—and since HCAL holds all of them and applies 1.25 times leverage, the income potential is even higher.
As of April 18, HCAL had a distribution yield of 6.56%, paid monthly. Think of this yield as a rough guide—it tells you what kind of income you might expect if distributions stay steady and the ETF’s price remains where it is.
Since HCAL only holds Canadian bank stocks, most of the distribution is made up of qualified dividends. However, there can also be some return of capital (ROC) mixed in.
For investors holding HCAL in a Tax-Free Savings Account or another registered account, the makeup of the distribution doesn’t really matter—everything is sheltered from tax.
In a non-registered account, though, the details are more important. Qualified dividends are taxed at a lower rate, while the ROC portion isn’t taxed immediately but lowers your cost base, which means you’ll pay more capital gains tax when you eventually sell.
