The Sectors Where Canada Actually Beats the United States

Canadian energy stocks and financial stocks continue to outpace their U.S. counterparts.

Key Points
  • While Canada trails the United States in technology and healthcare, it remains a global leader in financials and energy.
  • ZEB provides equal-weight exposure to Canada's major banks, combining diversification with tax-efficient monthly distributions.
  • ZEO offers diversified exposure across Canadian upstream and midstream energy companies through an equal-weight portfolio.

The S&P/TSX Composite Index is often criticized for what it lacks compared with the S&P 500. Technology is the obvious example. Canada has produced excellent technology companies, but nothing on the scale of the U.S. mega-cap giants that dominate artificial intelligence, cloud computing, semiconductors, and software.

Healthcare is another weak spot. The Canadian market has relatively few large pharmaceutical or medical device companies compared with the United States. Even communications looks very different. Rather than entertainment conglomerates, social media platforms, and streaming giants, Canada’s communications sector is largely dominated by traditional telecommunications providers.

But looking only at what Canada lacks misses where it excels. Two sectors have long been Canadian strengths: financials and energy. Both play outsized roles in the Canadian economy and offer investors exposure to industries where Canadian companies compete on a global stage. Here’s why they shine, and a sector exchange-traded fund (ETF) to watch for each.

Canada national flag waving in wind on clear day

Source: Getty Images

Canadian banks remain world-class

Canada’s banking system has earned its reputation over decades. One of the clearest examples came during the 2008 global financial crisis. While many international banks required government bailouts or failed outright, Canada’s largest banks remained profitable and continued paying dividends throughout the downturn.

That resilience was not an accident. Canada’s banking sector operates under relatively strict regulation, generally maintains more conservative lending standards, and has historically taken a more measured approach to risk than many international peers.

The result has been a group of institutions that consistently generate attractive returns on equity while returning significant amounts of capital to shareholders through dividends and share buybacks.

For investors seeking balanced bank exposure, BMO Equal Weight Banks Index ETF (TSX: ZEB) is a popular option.

Rather than weighting banks by market capitalization, ZEB gives each major Canadian bank approximately equal representation. The ETF charges a 0.28% management expense ratio (MER) and currently offers a 2.34% trailing 12-month distribution yield. Distributions are paid monthly and for 2025 consisted primarily of tax-efficient eligible Canadian dividends with a small return of capital component.

Canada is an energy powerhouse

Energy is another area where Canada enjoys significant advantages. The sector includes both upstream producers that explore for and produce oil and natural gas, as well as midstream companies that transport, process, and store those resources through pipelines and related infrastructure.

Both play important roles. Upstream companies generally benefit more directly from rising commodity prices, while midstream operators often generate steadier cash flows by charging fees to move hydrocarbons regardless of short-term price fluctuations.

Canada also benefits from abundant domestic energy resources, making it far less dependent on imported oil and gas than many other countries. Periods of geopolitical uncertainty can further highlight that advantage as global energy security becomes important.

Investors looking for core energy exposure may want to consider BMO Equal Weight Oil & Gas Index ETF (TSX: ZEO).

Like ZEB, the ETF uses an equal-weight methodology that avoids concentrating too heavily in the largest companies. The portfolio includes a mix of upstream producers and midstream infrastructure businesses, giving investors exposure across much of the Canadian energy value chain. ZEO currently charges a 0.60% MER and offers a 3.02% distribution yield.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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