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The Canadian energy and banking sectors dominate the market capitalization of the TSX, being among the most sustainable and profitable industries in Canada.
Now, with inflation at historic highs and the threat of multiple rate hikes on the horizon, these energy and banking stocks are once again poised to outperform in 2022 after having already done so in 2021.
Investors looking for exposure can either choose to buy individual energy and bank stocks or buy a sector-based exchange-traded fund (ETF) that holds them all. Fortunately, BMO Global Asset Management provides a set of low-cost ETFs that provide easy sector exposure. Let’s take a look at my favourites!
Banking sector ETFs
Canada’s so-called big banks include the Royal Bank of Canada, Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, Bank of Nova Scotia, Bank of Montrealand National bank of Canada.
Together, these six banks form a kind of oligopoly, enjoying little external competition, strong customer loyalty and steadily increasing revenues. The six banks have consistently exceeded earnings forecasts and have a history of increasing their generous dividend payouts.
Investors can own all six banks with one ticket by buying BMO Equal Weight S&P/TSX Banks ETF (TSX: ZEB). ZEB is currently trading at $39.75 per share, making it a very capital-efficient way to buy a portfolio of otherwise expensive bank stocks.
ZEB currently costs a management expense ratio (MER) of 0.28%, which equates to approximately $28 in fees per year for a $10,000 account. ZEB also pays a generous distribution yield of 3.40%, which is the average of all the bank’s dividend payouts.
Inflation means an increase in the prices of raw materials, be it oil, gasoline or natural gas. For companies in the energy sector, this means an increase in revenues and the value of assets on their balance sheet, which translates into higher share prices and dividends for investors.
There’s an easy way to own the TSX Energy sector with just one symbol — BMO Equal Weight Oil & Gas ETF (TSX: ZEO). ZEO owns a total of 11 Canadian energy oil and gas stocks in equal allocations. ZEO currently costs $61.06 per share, making it accessible for gaining exposure to the energy sector.
ZEO’s holdings include Tourmaline Oil, Arc Resources, Imperial Oil, Keyera, Cenovus Energy, TC Energy, Enbridge, Pembina Pipeline, Canadian Natural Resources, and Suncor Energy. ZEO has an MER of 0.61% and pays a distribution yield of 2.95%.
The insane takeaway
BMO offers fantastic, well-designed ETFs that provide easy exposure to hot sectors on the TSX. Investors looking to “adapt” their portfolios to the current macro environment should consider energy and banking sector ETFs like ZEO and ZEB. For a decently low management expense ratio, you can eliminate the cost and hassle of picking and rebalancing individual stocks.