Richard Orrell BMO EQUAL WEIGHT BANKS INDEX ETF ZEB-T COMMENT Jan 20, 2025

Basket of Canadian banks, equal weight, no covered call. One-year return is 13.3%. Whereas the ZWB, which applies a covered call strategy, has a one-year return of 9.1%

Great option to get exposure to Canadian banks. Excellent option for long term investors. 

Equal weight of the 6 Canadian banks. Very simple, fees have been cut. Over the long haul, outperforms ZWB. ZWB gives you more yield in the present, but diminishes upside participation in a growth market.

To choose, he asks clients about yield requirements and time horizon.

Good long-term hold for the past 20 years, even through all the ups and downs of markets.

Banks in general are entering a normal level. Concerns about high interest rates and defaults are mostly in the past. Banks are good to hold here if you want some dividend-paying stocks. This one has a good strategy, holding the banks in equal weight.

Basket of Canadian banks, no covered call. Past year's total return is nearly 14%. As well, better return over 3 years than ZWB.

Over the past year, total return for ZWB was ~9.5%.

Because there's no covered call strategy, if we get into a bull market you get full advantage of the upside. Upside hasn't been "called away" to provide an income stream. Perhaps lower income, but more capital appreciation along the way.

Just the Canadian banks, no options, so will participate fully in a market rise.

They're popular, because people want the extra yield, but they work only in some environments. Better when you expects markets to go down for 6-12 months (a correction). In rapid declines, like Covid, you get only some protection. But in a strong market, you give you the upside and lag the market a lot. Just owning ZEB since 2011, you would have made 10.71% annualized; ZWB 8.34%. So, use ZWB defensively at some point after a correction, say 10% or 15% down. Use ZEB in a strong rally. During strong declines, both ETFs fall roughly the same, but during the recent strong rally, ZEB was 16.98% and ZWB 14.85%.