Yes, investing in the big Canadian banks is a favourite topic of mine. It can bring up so much spirited debate. And for the record, I hold Royal Bank, TD Bank and Scotiabank in my concentrated Canadian portfolio. Investing in Canadian banks has been extremely profitable over the decades. But as always -past performance does not guarantee future returns. You can buy the individual stocks. BMO offers an equal-weight Canadian bank ETF. And of course if you hold a Canadian equity mutual fund or ETF, you likely have considerable exposure.
On August 30 of this year I posted that it was the cheapest Canadian banks had been in 20 years. From that post …
The Canadian banks have a massive beat of the Canadian market over the decades. It’s one of the best performing sector subsets in North American stock market history. But will the beat go on? Of course nobody knows. As always, do not take this as advice.
I had touched on Canadian bank performance in a MoneySense post.
So how can the Canadian banks continually beat the market? That would mean that the market-makers (active managers) continually get it wrong. So much for the efficient markets theory.
From the time I’ve been watching them (decades) the banks seem to be at a perpetual discount to the total Canadian stock market. That is to say you can often or mostly buy a greater current earnings yield and dividend yield compared to ‘the market’. It’s the perpetual discount theory 🙂
Some signs from BMO’s ETF – ZEB.
As you may know BMO offers an equal weight Canadian banks ETF – ticker ZEB.
The fund currently holds the 6 largest Canadian banks. It is rebalanced on a regular schedule. Obviously given the daily and weekly moves in the market the equal weighting will drift. We’ll see the most recent out performers at the top of the list.
Of course Mike The Dividend Guy will be happy to see that National Bank at the top of the list. Mike often touts National as his favourite Canadian bank along with Royal. Mike has certainly been right about National.
And for fun, here’s ZEB vs iShares TSX ticker XIC from ZEB inception date.
The outperformance is even quite considerable over the last 10 years.
The recent yield history.
Here’s a chart courtesy of our friends at BMO.
We can see that the yield had been in the area below 3.5% for much of the last 10 years. It now sits in the area of 4.5%.
And here’s the historical returns from various yields for a 1-year period. Meaning when the yield is at 4.5% the avg return over the next 12 months was 17.3%.
Once again *past performance does not guarantee future returns 🙂
And on price to book, here’s another read on that ‘cheapness’.
Price to book evaluation is a favourite value-find metric for the world’s greatest investor – Warren Buffett.
In your research of the Canadian banks I suggest that you watch this video from TD. There are some great insights …
Canadian Bank Resilience: is the worst behind us.
Investing in ZEB equal weight banks.
While many will pick and choose their favourite banks, other self-direceted investors may choose to buy this ZEB basket. The Management Expense ratio is .61%, normally described as expensive for an ETF. But when I run ZEB vs the individual big bank stocks on portfoliovisualizer.com I see little performance drag due to the fees.
ZEB pays a monthly dividend. Of course many retirees like that dividend income stream. The big bank dividends deliver annual dividend growth in the range of 7-8%. But of course, in the pandemic those dividend increases are on hold.
More Weekend Reads.
On Boomerandecho it’s the Weekend Reads – savings rate edition. So many great links in there, my work is almost done, ha. And thanks to Robb for the mention of my TD One-Click Portfolio review.
And always nice to see even more digital ink on the one click or one ticket asset allocation portfolios. In that post Enoch looks at Vanguard’s VBAL.
This week I did a comparison of VBAL to Horizons one ticket HBAL. The Horizons asset allocation ETFs are the best performing group in Canada.
On My Own Advisor Barry Choi offers a guest post – Is travel hacking worth it?
On Retirement Manifesto, Fritz offers up on ever-changing life routines and frames it as the Re-entry.
The case for gold.
On findependencehub – the case for gold. I’m in! As global debt to GDP of nations is about to set records and eclipse the levels seen in the years after WWII.
On GenYMoney, a nice piece on CDIC and CIPF insurance. Of course, CDIC covers savings accounts while CIPF protection is for investment assets.
This week I posted a review of EQ Bank. The savings account rate is currently 1.7%.
On some portfolio moves Rob at Passive Canadian Income sold Altagas and bought more Restaurant Brands International. He calls it a shake and bake.
Matt at All About The Dividends delivers an August report.
Bob at Tawcan also delivers the Dividend goods for August.
And on MoneySense, here’s a great post from Alexandra Macqueen that will help you gain a true understanding of inflation, and the history of inflation.
And also on MoneySense, me, with my latest – Making sense of the markets this week. I looked at the Cogeco takeover, the rise and fall of Tesla and more.
Thanks for reading. Have a great day. Drop a note in the comment section or send me a note via the contact form. And don’t forget to follow this blog.
How to buy those one ticket ETFs .
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If you’re a big bank guy or gal you might have a look at BMO InvestorLine.
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