A Whirlwind Turned Tailwind for Canadian Banks and Energy

Aug. 23, 2023


The Canadian economy has weathered inflation and its impact on the job market. And while some sectors have been lagging, there are plenty of opportunities in the marketplace. Portfolio Manager Omanand Karmalkar shares where to find them.



  • Through uncertainty, Canadian markets have shown resilience and potential for growth
  • Canada’s Big Six” are trading at a discount relative to the broad market
  • Demand for oil has been at record levels resulting from strong summer air travel and increased oil use in power generation, among other factors

Finding opportunities in the Canadian marketplace

Canada has seen some sectors lagging, including the banks, Energy stocks, and certain telecommunications companies. Nevertheless, the Canadian economy has weathered a whirlwind of concerns surrounding inflation and its impact on the job market. While it seems that markets are banking on a soft landing — as indicated by relatively high valuations — achieving this scenario might prove challenging. Central bankers’ ability to balance economic growth and inflation control is pivotal. 

In terms of Canada’s prospects, some areas are worth considering. After facing some turbulence from issues affecting U.S. regional banks, the Canadian banks have stabilized. Their valuation remains reasonable, and despite expected headwinds, they could offer an interesting investment for clients. 

The reasons for this include: 

  • Canadian banks are still trading below their forward-looking average price-to-earnings (P/E) ratio. 
  • They have a more diversified industry exposure, unlike the concentrated exposure in the regional banks down south (e.g., Technology/​Venture, Crypto, etc.).
  • The six major banks control approximately 80% of the Canadian banking assets and have avoided major scandals or failures that have plagued their European and U.S. peers (e.g., Credit Suisse in 2008). 

Forward looking P/E for Canadian banks below 10-year average

Forward looking P/E for Canadian banks below 10-year average
Source: Bloomberg, as of August 162023.

The Energy stocks, which struggled initially, also show signs of improvement as oil prices strengthen and valuations remain appealing. We saw the tightening of physical supplies led by Saudi Arabia and OPEC+, and, at the same time, demand is holding up better than expectations. This caused oil prices to rally significantly (~20% from the lows).1 The demand for oil has been at record levels due to strong summer air travel, increased oil use in power generation and surging Chinese petrochemical activity. Given the risk of supply cuts, we could see oil prices and energy stocks have a stronger second half in 2023.

World liquid fuels production
Million barrels per day

Source: U.S. Energy Information Administration. Short-Term Energy Outlook, August 2023.

World liquid fuels consumption
Million barrels per day

World liquid fuels consumption Million barrels per day
Source: U.S. Energy Information Administration. Short-Term Energy Outlook, August 2023.


While the Canadian market might not have matched the gains of the U.S./Europe, Australasia, and the Far East (EAFE) market this year, it has shown resilience and potential for growth. The stabilization of banks and the potential resurgence of Energy stocks could provide tailwinds for the space.

We have several ways for investors to access these sectors. Firstly, for Financials, the BMO Equal Weight Banks Index ETF (Ticker: ZEB) offers single-ticket access to Canada’s Big Six.” Similarly, the BMO Covered Call Canadian Banks ETF (Ticker: ZWB) provides exposure to the same base portfolio as ZEB; however, it also earns call option premiums to enhance the yield in the portfolio. 

And, for Energy, the BMO Equal Weight Oil & Gas Index ETF (Ticker: ZEO) invests in blue-chip Canadian companies, such as Cenovus, Enbridge and Suncor. The BMO Covered Call Energy ETF (Ticker: ZWEN) on the other hand, provides exposure to a concentrated portfolio of North American listed energy and energy-related companies, while also earning call option premiums.

Sector BMO Equal Weight Banks Index
ETF (Ticker: ZEB)
BMO Covered Call Canadian banks ETF (Ticker: ZWB)
Primary Goal Income + Growth Income
Exposure Canadian Banks Canadian Banks
Distribution Frequency Monthly Monthly
Distribution Yield2 4.93% 7.38%
Sector BMO Equal Weight Oil & Gas
Index ETF (Ticker: ZEO)
BMO Covered Call Energy ETF
(Ticker: ZWEN)
Primary Goal Income + Growth Income
Exposure Canadian Energy Energy
Distribution Frequency Quarterly Monthly
Distribution Yield2 4.70% 8.64%

Source: BMO Global Asset Management, as of August 112023.

1Bloomberg, from June 12, 2023 lows to August 222023.

2Annualized Distribution Yield: The most recent regular distribution, or expected distribution, (excluding additional year end distributions) annualized for frequency, divided by current NAV.


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