The BMO S&P/TSX Equal Weight Banks Index ETF offers exposure to the Big Six Canadian banks, whose shares have performed well in recent years.Fred Lum/The Globe and Mail
Don’t deposit your money in banks. Invest it in bank stocks.
I asked ChatGPT for the source of this quote. Turns out there isn’t one. Warren Buffett went part way, saying: “Don’t put your money in the bank.” It was his way of encouraging productive investments, rather than cash savings.
The rationale makes sense. Banks, especially the big ones, pay woefully low interest on deposits. But bank stocks are a different story. The S&P/TSX Financials sub-index, which is mostly made up of banks and insurers, has outperformed the TSX Composite for three consecutive years. It gained just over 9 per cent in 2023, followed by 25 per cent in 2024 and 29.2 per cent so far in 2025 (to Dec. 12).
This comes as a bit of a surprise, given Canada’s sluggish economic growth and the increasing number of debt defaults. Some of the smaller banks have been hurt as a result – the shares of EQB Inc. (EQB-T), which owns EQ Bank, are marginally in the red this year. But the Big Six are thriving.
The top performer has been Toronto-Dominion (TD-T), which has rebounded from last year’s sell-off stemming from money laundering charges against its U.S. operations. The result was a loss of 10.6 per cent for the shares in 2024. But it didn’t take long for investors to put all that behind them and move on. TD stock is up 65 per cent so far this year, more than double the gain of industry leader Royal Bank of Canada (RY-T).
The runner-up is Canadian Imperial Bank of Commerce (CM-T), with a gain of 40.6 per cent. The rest of the major banks have posted gains between 29 per cent and 32 per cent.
If you don’t want to pick individual stocks, an easy way to invest in the big banks is to buy units of the BMO S&P/TSX Equal Weight Banks Index ETF (ZEB-T). It was first recommended in my Internet Wealth Builder newsletter in September, 2018, at $30.05. Here are more details:
BMO S&P/TSX Equal Weight Banks Index ETF
Background: ZEB invests on a more-or-less equal basis in the shares of the Big Six Canadian banks. It pays a monthly distribution that approximates the dividends paid by the banks.
Performance: The units are currently trading at $58.10, near their all-time high of $58.49. The fund is ahead 36.6 per cent this year (to Nov. 30) and shows an average annual compound rate of return of 12.6 per cent since it was launched in October, 2009. The share price is up 93 per cent from our original recommendation.
Key metrics: The ETF has $5.4-billion in assets under management. The MER is 0.28 per cent.
Holdings: TD is the largest position in the fund, with a weighting of 17.34 per cent. CIBC is next at 17.09 per cent. Bank of Montreal has the lowest weighting, at 15.19 per cent.
Distributions: They are paid monthly at a current rate of $0.145 per unit ($1.74 a year). The yield at the current price is 3 per cent.
Tax considerations: Last year, total distributions were $1.68 per unit. Of that, about $1.63 (97 per cent) was considered eligible dividends for tax purposes. The rest was return of capital. This tax efficiency makes the fund a good choice for non-registered accounts. Of course, no taxes are incurred if the units are held in a registered plan.
Risk: Obviously, if the banking sector were to take a big hit, as during the financial crisis in 2007-2009, this ETF would suffer major losses. However, those would likely be temporary. RBC stock hit a low of $10.66 in early 2009, a loss of about two-thirds from its 2007 high. By 2010 it had regained all that ground and more, reaching a high of over $34.
Conclusion: This ETF should be a core holding in conservative accounts.
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
Editor’s note: An earlier version of this story incorrectly said that 97 per cent of last year's distributions were considered capital gains for tax purposes. This version has been corrected.