Canadian Investors: 3 Bank, Energy, and Tech ETFs to Replace Stock Picking

These three sector-specific ETFs are great alternatives to stock picking.

Tony Dong, MSc, CETF®

Tony turned a series of 2017 marijuana stock losses into a freelance career advocating for ETF investing. He currently holds a Master’s in Risk Management from Columbia University and is a Certified ETF Advisor (CETF®). Tony is the founder of ETF Portfolio Blueprint (etfportfolioblueprint.com) and the Lead ETF Analyst for ETF Central, a partnership between Trackinsight and the NYSE. His analysis has also been featured in publications like Kiplinger, 24/7 Wall St., U.S. News & World Report, TheStreet, and Benzinga. Tony also provides independent content and marketing consulting services to various Canadian and U.S. ETF issuers. His editorial opinions for The Motley Fool remain independent and objective.

Published June 8, 2022 10:45 am EDT

Canadian investors looking to buy domestic stocks have a variety of blue-chip picks to create their portfolios. Canada’s economy is dominated by the financial and energy sectors, with a handful of large-cap stocks leading the index.

In addition, Canadians can also buy the TSX tech sector. Although beaten down throughout the course of 2022 due to inflation and rising interest rates, companies in this sector remain solid picks for future growth and innovation.

However, instead of picking and choosing individual stocks (which can be time consuming and stressful) a better way might be to buy an exchange-traded fund (ETF) that holds the largest, most well-known stocks of each sector. Let’s take a look at some great picks today.

exchange traded funds — Image source: Getty Images

Energy sector

The top ETF for tacking the TSX energy sector is iShares S&P/TX Capped Energy Index ETF (TSX:XEG). XEG is high popular, having attracted assets under management (AUM) of $2.15 billion.

The ETF tracks the S&P/TSX Capped Energy Index, which holds 22 TSX energy stocks. Each stock in XEG is subjected to a 25% cap on their weight to ensure balance.

The top five holdings of XEG include Canadian Natural Resources, Suncor Energy, Cenovus Energy, Tourmaline Oil, and Imperial Oil, with the first two stocks at 24.89% and 24.07% each.

In terms of fees, XEG costs a management expense ratio (MER) of 0.61%, or around $61 annually for a $10,000 portfolio

Banking sector

Canada’s Big Six banks include Royal Bank of Canada, Toronto-Dominion Bank, Canadian Imperial Bank of Commerce, Bank of Nova Scotia, Bank of Montreal, and National Bank.

Together, these banks form an oligopoly, with minimal competition. A great way to buy all six banks with one ticker is via BMO S&P/TSX Equal Weight Bank Index ETF (TSX:ZEB).

The equal weighting of ZEB plus the quarterly rebalancing makes portfolio management extremely simple. ZEB also pays a decent distribution yield of 3.93% thanks to the high dividends of bank stocks.

In terms of fees, ZEB costs a MER of 0.28%, or around $28 annually for a $10,000 portfolio.

Technology sector

For the TSX tech sector, consider iShares S&P/TSX Capped Information Technology Index ETF (TSX:XIT), which holds 24 Canadian tech stocks of all market cap sizes.

The largest holdings in XIT are down significantly from all-time highs. Namely, Shopify and Constellation Software comprise 50% of the ETF and are now trading at much more attractive valuations.

XIT also holds companies like Open Text, CGI, Nuvei, Lightspeed Commerce, and BlackBerry in smaller portions. Buying XIT could be a great way to establish a low entry price for the sector.

In terms of fees, XIT costs a MER of 0.61%, or around $61 annually for a $10,000 portfolio.