Is This Canada Banks ETF Undervalued?

Mark Carney, who acted as governor of the Bank of Canada (BoC) from 2008 to 2013 and governor of the Bank of England from 2013 to 2020, recently projected a mixed future for the Canadian economy. On one hand, Carney said that global recession risk was high. However, Canada is again in position to avoid the worst of the looming downturn.

In this environment, investors may want to target Canada’s largest financial institutions. Rather than focus on one stock or another, you may want to snatch up an exchange-traded fund (ETF) that tracks Canada’s top bank stocks. The BMO Equal Weight Banks Index ETF (TSX:ZEB) fits the bill. It is designed the replicate the performance of the Solactive Equal Weight Canada Banks Index.

Shares of this ETF have dropped 13% in 2022 as of close on June 29. This has pushed the ETF into negative territory in the year-over-year period. It plunged 9.9% over the past month.

This ETF demands a solid MER of 0.28%. You can also rely on its monthly distribution of $0.12 per share, which represents a 3.5% yield. Investors should be very familiar with the top Canadian bank stocks that round out this fund. Top bank stocks like Royal Bank of Canada, National Bank, and Scotiabank are weighted relatively evenly.

The ETF currently possesses an RSI of 32. That puts the BMO Equal Weight Banks ETF just outside of technically oversold territory. I’m looking to snatch up dependable bank stocks on the dip as a rebound in this space is inevitable.