Canadian bank stocks have long been some of the most reliable investments on the TSX.
For years, they’ve built a reputation for generating steady profits, paying attractive dividends, and rewarding long-term shareholders through all kinds of economic environments. That’s why so many Canadian investors own at least one bank stock in their portfolios.
However, trying to figure out which bank will outperform over the next decade is often easier said than done.
That’s why, instead of trying to pick a winner, another option investors can consider is gaining exposure to the entire sector with a high-quality fund like the BMO Equal Weight Banks Index ETF (TSX:ZEB).
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Why Canadian banks are such reliable long-term investments
One of the biggest reasons Canadian banks have been such strong long-term investments is the structure of the industry itself.
Unlike many industries where dozens of competitors fight for market share, Canada’s banking system is dominated by a handful of large institutions. The Big Six banks control the vast majority of the market, creating a stable and highly profitable environment.
On top of that, Canada’s banking system is heavily regulated, which has historically helped reduce risk and maintain stability throughout the sector.
That’s important because banking is an essential service. Regardless of what happens in the economy, Canadians still need mortgages, savings accounts, investment products, business loans, and everyday banking services.
As a result, the major banks have consistently generated strong earnings and growing dividends for years. So, while individual banks will inevitably go through periods where they outperform or underperform their peers, the overall sector has proven remarkably resilient over the long haul.
Why I’d buy an ETF instead of picking a single Canadian bank
The challenge with buying just one bank is that you’re taking on company-specific risk.
For example, one bank may have more exposure to the U.S. economy, while another could be more dependent on international operations. Some may execute better than others over certain periods, while others face unexpected challenges.
And while some investors may prefer to pick an individual stock, for most Canadians, the far simpler approach is to own the whole sector. It takes the guessing and speculation out and lets you simply buy and hold.
Instead of trying to predict which bank will perform best, the ETF simply owns all of the major Canadian banks and gives each one roughly equal representation in the portfolio.
That equal-weight approach is important because it prevents investors from becoming overly dependent on any single bank. Rather than having most of your exposure concentrated in the largest institutions, you get a more balanced allocation across the entire sector.
In other words, you’re not betting on one bank; you’re betting on the strength of Canada’s banking system as a whole, which is a much simpler and more reliable strategy.
And that exposure isn’t just helpful for mitigating risk and ensuring you don’t miss out on growth; it’s ideal for income too. Not only is the distribution more reliable because it comes from multiple banks, but it’s also continuously increasing, since Canadian bank stocks are traditionally some of the best dividend growth stocks on the TSX.
The banks themselves continue growing their earnings, expanding their businesses, and increasing dividends over the long run.
That’s why, if you’re looking for exposure to bank stocks, ZEB is one of the best ETFs to consider rather than trying to pick a single winner.
It offers diversification, dependable income, and exposure to a sector that has consistently rewarded patient investors for decades, all without having to guess which bank will come out on top.
