Canadian Bank Exposure: There's An ETF For That (EWC, DBCN, IXG)
Actually, there are several ETFs with which investors can gain exposure to Canadian banks, a group of banks that are significantly less controversial than their U.S. counterparts. While the iShares MSCI Canada Index Fund (NYSE: EWC), the largest Canada ETF and one that is heavily allocated to bank stocks at over 33% of the fund's weight, has lagged the performance of the SPDR S&P 500 (NYSE: SPY) year-to-date and over the past month, some Canadian banks have been sturdy compared to their U.S. rivals.
For example, Toronto Dominion (NYSE: TD) and Bank of Montreal (NYSE: BMO) are both down just over 6% in the past month, but that's nothing compared to the 14% plunge for Citigroup (NYSE: C) and the 20% tumble for J.P. Morgan Chase (NYSE: JPM).
The sturdiness of Canadian banks is highlighted in a recent research note by S&P Capital IQ, which has Overweight ratings on four ETFs with exposure to Canadian banks. S&P Capital IQ has five-start ratings on Bank of Montreal, Bank of Nova Scotia (NYSE: BNS) and Canadian Imperial (NYSE: CM) and three-star ratings on Toronto Dominion and Royal Bank of Canada (NYSE: RY).
With over $151 million in assets under management, the iShares S&P Global Financials Sector Index Fund (NYSE: IXG) is the largest of the four ETFs to earn an Overweight rating from S&P. Canadian banks account for about 8% of the ETF's weight while Royal Bank and Toronto-Dominion are both top-10 holdings.
The DBX MSCI Canada Hedged Equity ETF (NYSE: DBCN), which offers a hedge on dollar/loonie fluctuationsalso received an Overweight rating. Bank stocks account for 23% of that fund's weight with Royal Bank of Canada, Bank of Nova Scotia and Toronto-Dominion as the top-three holdings.
The PowerShares KBW International Financial Portfolio (NYSE: KBWB), which features a 12-month trailing yield of over 3%, has an 18.4% weight to Canada, making the country the most heavily represented in this Overweight-rated ETF. Toronto-Dominion and Bank of Nova Scotia are featured among KBWB's top-10 holdings.
The thinly traded iShares MSCI ACWI ex US Financials Sector Index Fund (Nasdaq: AXFN) also landed an Overweight rating from S&P Capital IQ. Three Canadian banks are found among AXFN's top-10 holdings, though investors should note the ETF hasn't traded since May 31.
"We consider all four of the Canadian banks held by one or more of these ETFs (RY, TD, BMO, and BNS) to be well capitalized, with good credit quality, diverse product offerings, and attractive markets. Canadian banks are also well-known for paying robust dividends, and for having solid credit quality, due to a more conservative regulatory system in Canada," S&P said in the note.
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