The Canadian bank stocks have been incredible performers this year, gaining significant momentum without the same magnitude of turbulence as some of the exciting growth plays.
After side-stepping the past few weeks’ worth of volatility, which was centred around the tech and AI growth companies, perhaps the big bank stocks are worth banking on for long-term investors who want less choppiness through those periods when the market has a bit of AI indigestion, either due to sky-high AI data centre bills, bearish warnings from some pundit, or just an exhaustion of prior momentum. In any case, the banking trade looks quite solid, with many of the Big Six names at new all-time highs.
While not every big bank is as good a buy here, I do think that the latest momentum has a high chance of carrying over into 2026, whether or not the AI trade continues to correct or go sideways over the coming quarters. With so much reliance on Fed rate cut news, perhaps it’s not all too wise to chase the latest relief rally in the AI stocks. Instead, I still think big banks are a source of great value and dividends.
Of course, they’re also the new momentum plays in town, with the Big Six continuing to lead the charge, helping the TSX Index stay ahead of the S&P 500, which seems to be in a peculiar spot after the latest weakness in the tech sector.
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BMO Equal Weight Banks Index ETF looks solid
So, the big question moving forward is whether Canadian investors should buy a bank ETF, such as the BMO Equal Weight Banks Index ETF (TSX: ZEB), or if it makes sense to pick and choose among the Big Six. Though I’m not against buying an ETF such as the ZEB if you’re looking to maintain an equal weighting among the big bank basket over time and you’re willing to pay a 0.28% management expense ratio (MER), which isn’t expensive, but, at the same time, isn’t zero as it would be if one simply bought all the Canadian bank shares individually.
I guess it comes down to how important the rebalancing and equal weighting are for you and how much your broker charges in trading commissions. If you’re looking to maintain an equal weight across the big banks, you’d be looking at a considerable amount of trading in any given quarter.
Either way, I think the ZEB is a quick and easy way to keep things simple, especially if you like all the big banks equally. And I think there’s plenty of reason not to show preferential treatment, especially since some of the smaller, less-represented banks in the Big Six have plenty of growth and perhaps lower multiples to bring to the table.
Ultimately, it comes down to investor preference. In any case, striving for a 16.7% even weighting across the Big Six seems like a wise strategy. And if you’re fine with the 0.28% MER (in my opinion, it’s in a competitive spot, especially for most self-guided investors who want to avoid the hassles that come with maintaining an equal weight), I think the ZEB is the best there is on the Canadian market. There’s a nice 3.3% yield and a fairly modest price of admission in a market that most would consider to be a bit on the pricier side. Most impressively, the ZEB is up just shy of 30% year to date! That’s robust momentum that makes the ETF look better than the TSX!
