A good way to bet on the success and strength of the Canadian economy in the long term is to invest in the top banks. And you can do that with the BMO Equal Weight Banks Index ETF (TSX:ZEB). This exchange-traded fund (ETF) provides investors with diversified exposure to Canada’s largest banks, a cornerstone of the country’s financial sector. While banks have faced challenges this year amid economic uncertainty and higher interest rates, ZEB offers a compelling opportunity for long-term investors.
The Canadian banking sector has struggled in 2024, weighed down by softer loan demand, rising provisions for credit losses, and narrowing net interest margins. These headwinds have kept valuations subdued, with many banks trading at historically low price-to-earnings ratios. ZEB, which has just six holdings, isn’t a terribly diverse fund overall, but it does give investors an easy way to hold a balanced position in each of Canada’s top banks.
Despite current pressures, Canada’s banks are well-capitalized and globally recognized for their stability. When economic conditions improve, banks are likely to benefit from rebounding loan growth and reduced credit concerns. ZEB’s equal-weight strategy ensures exposure to the full range of opportunities across the sector, avoiding overreliance on any single name.
With a current yield around 4%, ZEB delivers attractive dividend income while investors wait for capital appreciation. The ETF distributes income every month, making it a suitable choice for those seeking steady cash flow.
For income-focused investors and those with a long-term outlook, ZEB offers an appealing mix of stability and growth potential. Buying during times of market weakness could set up investors for significant gains as the sector recovers.