Go to the Globe and Mail homepage

Jump to main navigationJump to main content



Top 12 funds for investing in banks, insurers Add to ...

We look for the leading performers in the financial services equity category for the one year ended Feb. 28

What are we looking for?

Financial companies dominate Canadian capital markets and are a fixture in portfolios of many investors. Let’s see how funds focused solely in this area have performed over the past year.

The screen

We looked for the top funds in the financial services equity category for the one year ended Feb. 28. U.S. dollar, segregated, pooled and duplicate versions of funds were excluded. Funds in this category must invest at least 90 per cent of their equity holdings in the financial services sector.

What did we find?

Looking outside Canada has been good for growth, but investors need to be mindful of their exposure to financials in and out of the country.

Bank of Montreal’s Equal Weight U.S. Banks Hedged to CAD Index exchange-traded fund (ETF) posted the best returns with gains of 32.8 per cent in the period.

“U.S. banks do well when the U.S. economy does well, and over the last [few] months we have seen continued strong numbers out of the U.S. If anything, they’re improving, which reinforces the idea that U.S. banks will continue to perform well,” said Chris McHaney, a vice-president and portfolio manager at BMO Asset Management Inc. It may be difficult to beat last year’s gains, however.

Investors should also consider whether or not they want the hedged version of this product, Mr. McHaney said. The unhedged version of this BMO ETF (ZBK-T), launched in mid-February, would have added 10 percentage points to the return had it been around the previous year. But after the U.S. dollar’s appreciation last year, investors may favour the hedged product, he said.

There are three BMO funds on the chart, and all of them are ETFs. Mr. McHaney said ETFs are a good way to get focused exposure to sectors such as U.S. or Canadian banks. Canadian financials tend to be blue-chip dividend payers, the U.S. banks are more growth oriented and many aren’t allowed to pay dividends.

Canadian investors are heavily exposed to Canadian financial services; more than 34 per cent of the S&P/TSX composite index is made up of financial stocks.

Investors should be mindful of how much exposure they might have to the sector through dividends, preferred shares and other funds.

“If you just buy a broad Canadian equity fund – an ETF or a mutual fund – you are probably one-third in financials … you have to look at the core of your portfolio and know how much bank exposure you have already,” Mr. McHaney said. “If you do want to add more, do you want Canadian banks or south-of-the-border names?”

The Investors Group Global Financial Services A fund was the second-best performer on the chart at 32.6 per cent. The fund is also heavily invested in the United States. The Dynamic Financial Services fund rounded out the top three with gains of 27.8 per cent in the period. Many of its top holdings are Canadian financials, with close to 40 per cent of its holdings in bank stocks.


Top 12 financial services equity funds as of Feb. 28, 2014

Report Typo/Error