Canadian financial ETFs can offer a higher return than a broader Canadian index ETF or some dividend ETFs. Depending on your goals (portfolio building or retirement income) there are several options that should be considered.
When it comes to funds or ETFs, you want to know the MER and the composition of the fund, as well as understand the strategy. For example, some funds pay a higher return than the stocks they hold and this has to do with the fund’s active nature, which results in a higher MER.
What is a financial ETF?
A finance ETF is an ETF (Exchange Traded Fund) that focuses on the finance or banking sector. Canadian financial ETFs are a great way to invest in Canada’s banks, as banks play an important role in the Canadian economy. Canada’s bank stocks are characterized by attractive yields and dividend distributions, making them a good investment proposition.
A financial ETF can on the one hand offer the opportunity to invest in the lucrative banking sector and on the other hand take a diversified commitment. These ETFs eliminate the need to choose between different banks, which now have differentiated business strategies and operate in diversified regions.
Investors can use this guide to find out about the investment objectives, top ten holdings, frequency of dividends (if any), costs and expenses associated with investing in these ETFs, etc.
Best financial ETFs
When you look at the Canadian financial ETFs, the choice is yours to focus only on the big banks, the banking industry, or the entire financial industry that includes life insurance and mortgage companies.
What makes investing in a Canadian bank ETF appealing is its active management by the fund manager, which can increase your income if you are looking for income. If you were to buy the 6 Big Banks alone, you would have an average dividend yield of 4.5% with expected dividend growth of around 8%. It forms a number of core holdings for a Canadian portfolio.
If you want more income than you need to get creative and either you start selling covered calls yourself or you let the bank’s ETF managers do it for you. I believe it’s a better option than buying high dividend yielding stocks as they only fly high for a short time.
FIE – iShares Canadian Monthly Financial Income
The iShares Canadian Financial Monthly Income ETF consists of a diversified portfolio consisting primarily of common stocks, preferred stocks, corporate bonds and income trust units of the Canadian financial sector. The ETF seeks to maximize investor total returns in the form of distributions and capital appreciation, and offers a steady stream of monthly cash distributions. It has a medium risk rating.
HEF – Horizons Enhanced Income Financials
The Horizons Enhanced Income Financials ETF invests in a portfolio of stocks and equity related securities of Canadian companies in the banking, finance and financial services sectors. The ETF offers investors monthly distributions of dividend and call option income. HEF also writes covered call options on 100% of the portfolio’s securities to mitigate downside risk and generate income. Horizons ETFs Management (Canada) Inc. is the fund manager.
ZWB – BMO Covered Call Canadian Banks
The BMO Covered Call Canadian Banks ETF aims to provide exposure to the performance of a portfolio of Canadian banks while earning call option premiums. The ETF primarily invests in the securities of Canadian banks and writes covered call options. The options are updated when they expire. This ETF is intended for investors looking for higher equity portfolio returns while writing call options reduces volatility. BMO Asset Management is the fund manager and this ETF belongs to the special income sector. The ETF pays monthly income and has a medium risk rating.
CIC – First asset class in the CanBanc income class
The First Asset CanBanc Income Class ETF aims to reduce the overall volatility of portfolio returns by owning a portfolio of stocks from leading Canadian banks. The investment objective of the Fund is to provide shareholders with quarterly dividends and the opportunity for capital appreciation. The Fund sells call options monthly on a maximum of 25% of the common stocks of each bank held in the portfolio as part of its investment strategy. The ETF is 100% involved in the financial sector.
HXF – Horizons S & P / TSX Capped Financials Index
The Horizons S & P / TSX Capped Financials Index ETF aims to track the performance of the S & P / TSX Capped Financials Index, net of costs. The S & P / TSX Capped Financials Index is designed to measure the performance of equity stocks in the Canadian financial sector contained in the S & P / TSX Composite Index. Horizons ETFs Management (Canada) Inc. is the fund manager.
ZEB – BMO S & P / TSX Equal Weight Banks Index
The BMO Equal Weight Banks Index ETF is designed to track the performance of the Solactive Equal Weight Canada Banks Index at no cost. The Fund seeks to invest and hold the constituent stocks of the Index. BMO Asset Management is the fund manager.
The goal of the ETF is growth and income equity. The ETF pays monthly income and has a medium risk rating. It is aimed at investors looking for growth solutions and offers 100 percent exposure to Canadian bank stocks.
XFN – iShares S & P / TSX Capped Financials
The iShares S & P / TSX Capped Financials ETF aims to provide long-term capital growth by tracking the performance of the S & P / TSX Capped Financials Index, net of costs. The ETF offers exposure to Canadian financial companies. BlackRock has rated the volatility of this ETF as medium.
CEW – iShares Equal Weight Banc & Lifeco ETF
iShares Equal Weight Banc & Lifeco ETF consists of a diversified and equally weighted portfolio of stocks from the largest banks and life insurance companies in Canada. These banks have a minimum market capitalization of $ 5 billion, while Canadian life insurance companies have a market capitalization value of at least $ 1.5 billion. The ETF offers exposure to certain subsectors of the Canadian financial services industry while offering its shareholders the opportunity to earn regular monthly dividend income. BlackRock has rated the volatility of this ETF as medium to high and is the perfect choice for investors looking for long-term capital growth.
How to buy financial ETFs
To buy a financial ETF, you need a discount broker because ETFs trade like stocks on an exchange for ETFs. You indicate the number of stocks you want to buy from the selected ETF and whether you want to pay the market price or enter the price you want to pay.
I usually place a limit order with the market price just to avoid a mistake from the trading algorithm.
It happens that there are many discount brokers that offer access to free ETFs and you should use a discount broker with free ETFs whenever possible. Questrade is one of those discount brokers with free ETFs.