An Attractive Entry Point for Canadian Banks Amid Rate Cuts

Jun. 4, 2024

With the pace of economic growth slowing sharply in Canada and monthly CPI (Consumer Price Index) data continuously coming in lower, a rate cut by the Bank of Canada this week was highly expected. When interest rates drop, it typically eases the pressure on defaults, bringing potential tailwinds to Canada’s Big Six lenders. Now could serve as a tactical time to add or increase a weighting to Canadian banks.

Featured ETFs


  • ZEB provides equal-weight exposure to large, diversified Canadian bank stocks
  • ZWB call option writing reduces volatility while producing monthly cash distributions
  • ZEBA invests in Canadian banks while earning an amplified price return of an underlying reference index up to a cap, plus dividends (before fees, expenses and taxes)

Canadian banks remain resilient even as loan loss provisions continued to weigh on profits. Recent quarterly earnings were constructive for Canadian banks as five of the six major lenders beat expectations.1

BMO, Bank of Nova Scotia, Royal Bank of Canada and National Bank all raised dividends which bodes well for income-seeking investors. Overall, Canadian banks have a reliable dividend payment, with ZEB and ZWB boasting annualized distribution yields of 4.61% and 7.27%, respectively.2

Price action has been very constructive over the last six months, and we have seen some momentum with the BMO Equal Weight Banks Index ETF (Ticker: ZEB), which has experienced a 15.63% climb since November 2023.3

With the wide dispersions between the banks as of late, one may have the opinion that not all banks are considered equal. More specifically the performance spread between RBC and TD were as wide as 18% in May. BMO’s Equal Weight strategy is designed to remove concentration risk in a particular company. With the more recent volatility with certain Canadian banks, we have seen more stable returns from ZEB and ZWB.3

Both ZEB and ZWB are low-cost solutions to gain exposure to Canadian banks. These ETFs have remained two of the largest, most liquid Canadian bank ETFs in Canada and have gathered over $6.3 billion of AUM since inception.4

Big Canadian Bank Yields

Big Canadian Bank Yields
For illustrative purposes only.


For exposure to an approximate equal weighted basket of Canadian Banks consider buying BMO Equal Weight Banks Index ETF (Ticker: ZEB) with an enhanced yield component the BMO Covered Call Canadian Banks ETF (Ticker: ZWB) and for the potential to accelerate growth the BMO Canadian Banks Accelerator ETF (Ticker: ZEBA).









Since Inception

BMO Equal Weight Banks Index ETF









BMO Covered Call Canadian Banks ETF









Source: Bloomberg, as of May 312024.

1 Bloomberg, May 312024

2Annualized Distribution Yield as of May 24, 2024: The most recent regular distribution, or expected distribution, (excluding additional year-end distributions) annualized for frequency, divided by current NAV. Source: BMO Global Asset Management.

3 Calendar Performance source: Bloomberg May 312024.

4 AUM Flows source: BMO Global Asset Management May 312024


This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Particular investments and/​or trading strategies should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance. 

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