Category: Investor Education

Large European Banks Remain Resilient Despite Economic Headwinds

Posted on by Veronica Carlasuc

Banking stocks are generally considered some of the safest equities to hold, providing investors with great long-term capital appreciation, solid dividend growth, and robust share repurchase programs. That doesn’t mean there aren’t risks associated with banking stocks.

Banks rely on businesses and consumers to spend and borrow money. During recessions, discretionary spending tends to fall, with fewer people buying large ticket items like cars and houses or using their lines of credit. Moreover, if consumers cannot repay their debts, they are at risk of defaulting on their loans, which banks have to absorb.

One of the biggest ways that banks make money is by taking in deposits, lending the money, and making a profit from the difference in interest rates. As a result, banks make less money during low-interest rate environments and more when interest rates are on the rise.

How Are European Banks Doing?

In an effort to tame runaway inflation, central banks around the world have been raising their key lending rates. The Eurozone interest rate is at 2.5% and is expected to rise to 3.25% in 2023. The Bank of England’s base rate is 3.50% and the Swiss National Bank recently lifted its interest rates to one percent.

Despite economic headwinds and fears of a recession, European banks are doing very well, reporting strong profits, improved balance sheets, and strong liquidity. But investors remain nervous and concerned that rising defaults and a recession will cut into earnings and weigh down dividend payments and buybacks.

Their concerns may be misguided. U.S. banking giant Morgan Stanley predicts that European banks’ pre-provision profits will increase 16% in 2022 and a further eight percent in 2023. European banks are also expected to return at least €100 billion (CAD$1.45 billion) through dividends and stock buybacks.

Rising interest rates are helping fuel earnings growth through significant increases in net interest income, with the amount charged for loans rising faster than the rate paid out on deposits.

How Will European Banks Navigate Rising Interest Rates?

Generally, banking stocks do not do well during recessions. But the rising interest rate environment has positioned European banks for a strong 2023. Moreover, fewer analysts are calling for a European recession this year.

The fact is, some of Europe’s largest banks are posting stronger-than-expected profits, juiced in large part by higher interest rates. Interest rates were kept at near-record lows since the financial crisis, more than a decade ago. Now, with rates rising at their fastest pace in decades, banks are cashing in.

In Germany, Deutsche Bank AG reported third-quarter earnings that came in above estimates. Italy’s UniCredit SpA increased its 2022 earning guidance after third-quarter profits rose above forecasts. Meanwhile, Britain’s Barclays PLC and Standard Chartered PLC, and Spain’s Banco Santander SA also posted better than expected results.

These results are in contrast to the mixed results coming from big U.S. banks, where profits were down, largely as a result of a sharp decline in deal-making. European banks are less reliant on deals for revenue and profits than U.S. banks and have been benefitting from the rising interest rate environment.

As a result, European banks are more than resilient enough to handle the effects of rising interest rates. What they will need to prepare for, though, is the normalization of inflation and the return of lower interest rates. But again, European banks have thrived in an ultra-low interest rate environment since 2008.

How Will European Banks Perform in 2023?

On the surface, it may not seem like a great time to invest in European banks. Gross domestic product (GDP) growth has slowed across much of Europe with a potential recession increasing credit risks and the demand for energy creating additional headwinds.

Many believe a recession is all but inevitable in 2023.

Historically, recessions come after periods of monetary tightening approximately 80% of the time. A recession is loosely described as two consecutive quarters of negative growth. So technically, we could be at the start of a recession and not know it.

It’s a different story though for Europe, the world’s largest economic region, with economists at Goldman Sachs saying it doesn’t look like it is going to tip into a recession. Economists expect the Eurozone to contract in the fourth quarter of 2022 but expect it to rebound slightly in the first quarter of 2023. For the full year, Goldman expects the Eurozone economy to climb 0.6%, a big increase from the previous call of a 0.01% dip.

There are three primary reasons why Europe is expected to avoid a recession in 2023: the industrial sector has been resilient, natural gas prices are down, and the Chinese economy is reopening earlier than expected.

Some European economies will fare better than others in 2023. Germany and Italy are expected to flirt with a recession owing to their reliance on Russian gas imports. France and Spain, though, have more diversified energy sources and are also more service-sector intensive.

Worst-case scenario and Europe does enter into a recession in 2023, it is expected to be mild.

So far, the European banking sector has been more than resilient to the challenges it is facing. It has had more than 10 years of near-zero interest rates and other headwinds to help strengthen its balance sheet. The tide has turned, with interest rates on the rise, and European banks are thriving.

Looking to Invest in European Banks?

Those looking to invest in the largest European banks can do so through a number of different strategies. One way would be to purchase shares in each company. But that would be exceptionally costly.

Another option for investors to gain exposure to the biggest European banks is through an exchange-traded fund (ETF).

Investing in European Banks with EBNK ETF

The Evolve European Banks Enhanced Yield ETF (EBNK ETF) is an index-based ETF that invests in equity securities of the largest European banks on an equally-weighted basis, with the added value of a covered call strategy applied on up to 33% of the portfolio. Covered call options have the potential to provide extra income and help hedge long stock positions.

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The contents of this blog are not to be used or construed as investment advice or as an endorsement or recommendation of any entity or security discussed. These contents are not an offer or solicitation of an offer or a recommendation to buy or sell any securities or financial instrument, nor shall it be deemed to provide investment, tax or accounting advice. The information contained herein is intended for informational purposes only.
Commissions, management fees and expenses all may be associated with exchange traded funds (ETFs) and mutual funds (funds). Please read the prospectus before investing. ETFs and mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. There are risks involved with investing in ETFs and mutual funds. Please read the prospectus for a complete description of risks relevant to ETFs and mutual funds. Investors may incur customary brokerage commissions in buying or selling ETF and mutual fund units.
Certain statements contained in this blog may constitute forward-looking information within the meaning of Canadian securities laws. Forward-looking information may relate to a future outlook and anticipated distributions, events or results and may include statements regarding future financial performance. In some cases, forward-looking information can be identified by terms such as “may”, “will”, “should”, “expect”, “anticipate”, “believe”, “intend” or other similar expressions concerning matters that are not historical facts. Actual results may vary from such forward-looking information. Evolve Funds undertakes no obligation to update publicly or otherwise revise any forward-looking statement whether as a result of new information, future events or other such factors which affect this information, except as required by law.

ETFs or Mutual Funds? The Tax and Fee Differences Canadian Investors Can’t Ignore

Posted on by Janice Leung

Canadian investors want control, transparency, and cost-efficiency from their portfolios, especially if they are building passive income strategies or planning for retirement.

Government guidance still points investors toward basic planning steps (how much you’ll need, types of retirement income, saving habits, etc.), however, it does not specify which financial product is most suitable. In this context, understanding the distinctions between ETFs and mutual funds becomes particularly valuable.¹ That’s where understanding the structure of ETFs versus mutual funds helps.

So, let’s have a look at traditional mutual fund strategies and more modern ETF strategies to understand their key differences and so you can decide which approach fits your portfolio.

The “Old Model”: Mutual Funds

Mutual funds remain a simple, familiar choice for many investors: you buy into a pooled fund, and the fund issues a NAV (net asset value) that determines your price once per day, after markets close. That end-of-day pricing can be convenient for regular contributions, but it removes intraday control and trading.²

Mutual funds can still make sense for automatic investing plans, employer/retirement arrangements, or when advice is bundled with management. However, their structure can carry higher ongoing costs and less intraday flexibility than ETFs.

Every mutual fund comes with an expense ratio. This figure shows the ongoing cost of owning the fund and is expressed as a percentage of the fund’s total assets. The expense ratio typically covers management fees, the cost of paying professionals to run the portfolio, and may also include marketing costs (known as 12b-1 fees).

On top of the expense ratio, some mutual funds charge additional fees. These can include account fees if your balance falls below a minimum threshold, redemption fees if you sell too quickly, exchange fees when you move money between funds in the same company and even purchase fees when you first buy into the fund.³

For investors, the key takeaway is that the expense ratio is just the starting point. Other charges can add up and eat into your returns over time, so it’s important to understand the fee structures.

The “New Model”: ETFs

ETFs trade on an exchange like a stock does, so you can buy or sell during market hours which gives DIY investors more control over execution and price.

ETFs have also expanded far beyond plain-vanilla index products. The modern ETF market covers equities, fixed income investments, commodities, and strategy wrappers that aim to deliver specific yield or risk outcomes.⁴

Two important Canadian nuances: many ETFs disclose holdings frequently (which supports transparency) and most offer intraday liquidity, but disclosure practices and the specifics of some active ETF structures are under regulatory review in Canada, thus understanding the transparency level of your funds is important, as they can vary.⁵

Like mutual funds, ETFs also have an expense ratio, which covers the cost of managing the fund. In most cases, ETFs charge lower expense ratios than mutual funds, especially for index-tracking products. This makes them attractive for cost-conscious investors.

Unlike mutual funds, ETFs usually don’t have marketing fees, and they rarely impose account or redemption fees. Instead, the main “extra” cost to be aware of is the trading commission or bid-ask spread you pay when buying or selling shares on the exchange. Depending on your brokerage, commissions may be zero, but the spread (the slight difference between the buy and sell price) is a standard market cost.⁶

The result, however, is that ETFs tend to be more transparent and predictable on fees. You know the expense ratio upfront, and aside from modest trading costs, that’s usually it. For DIY investors, this structure can make ETFs a more cost-efficient option over the long run.

How ETFs Can Power Income Strategies

If your goal is income investing, whether dividend investing, passive income strategies, or retirement income strategies, ETFs are now a pragmatic way to implement those approaches:

  • Fixed income core: Bond ETFs give easy exposure across maturities and credit profiles without buying individual bonds, and the market’s fixed-income ETF coverage has expanded sharply in recent years.⁷
  • Dividend and income equity exposure: For dividend investors and those pursuing ETF income strategies, ETFs offer diversified access to dividend-paying companies (and may simplify rebalancing and cash distribution).⁸
  • Covered call strategies: ETFs that implement covered call or buy-write strategies generate option premium income at the fund level, turning equity exposure into a higher cash distribution for investors. These structures can suit income-oriented investors but come with trade-offs, notably capped upside potential in strong rallies.⁹

Putting those tools together—fixed income ETFs for a core, dividend and income equity ETFs for yield, and covered call ETFs for enhanced distributions—is one way investors can build layered, ETF-based retirement income strategies or passive income strategies.

Tax And Reporting: A Quick Canadian Reality Check

Taxes matter for income strategies. Dividend income can benefit from the dividend tax credit for Canadian eligible dividends, while capital gains and foreign income have different reporting and withholding rules.

For tax reporting, mutual funds typically issue T-series slips (T3/T5) and have established rules for how distributions and capital gains are reported.¹⁰

With ETFs, you’re generally taxed in two ways: when you sell your units for more than you paid, and when you receive distributions. Selling at a profit creates a capital gain, and only half of that gain is taxable at your marginal rate. Distributions—whether dividends, interest, foreign income, or return of capital—are also taxed differently depending on their source. For example, eligible Canadian dividends benefit from the dividend tax credit, interest income is fully taxable and return of capital isn’t taxed right away but lowers your cost base for future capital gains.

The key advantage of ETFs is their efficiency. Mutual funds often pass along capital gains to all investors in the fund, even if you haven’t sold your own units—leading to unexpected tax bills. ETFs, on the other hand, rarely distribute capital gains. That means you’re generally only taxed when you decide to sell or when you receive income distributions. For long-term investors, this control can make ETFs a more predictable and tax-friendly choice, alongside their other benefits of lower fees, transparency, and liquidity.¹¹

ETF Income Strategies With Evolve ETFs

If you’re looking for an opportunity to diversify your portfolio with fixed-income holdings like bonds, one option is investing in fixed-income ETFs.

Evolve Enhanced Yield Bond Fund (BOND ETF) provides investors with a low-cost fixed income solution that seeks to deliver attractive monthly income and long-term capital appreciation. To enhance yield, as well as mitigate risk and reduce volatility, BOND will initially employ an active covered call option writing program on 50% of the portfolio.

For more information on Evolve Enhanced Yield Bond Fund (BOND ETF), explore fund details here.

Or perhaps you’re looking for an investment solution that will keep you invested in stocks while offering the opportunity to take advantage of market volatility?

Evolve’s S&P/TSX 60 Enhanced Yield Fund (ETSX ETF) is designed to provide investors with the performance of the S&P/TSX 60 Index, with the addition of enhanced yield through active covered call strategies on the underlying securities. This Fund invests primarily in the equity constituents of the S&P/TSX 60 Index, while writing covered call options on up to 33% of the portfolio.

Or maybe you want a way to tap into Canada’s leading companies while generating enhanced income through a covered call strategy, modest leverage*, and twice per month distributions?

The Evolve Canadian Equity UltraYield ETF (CANY) aims to offer investors modestly levered exposure (1.33x) to a portfolio of leading Canadian equity securities that have the potential to generate significant option premiums.* CANY will employ a covered call option, the level of which may vary based on market volatility and other factors.

For more information on this fund, visit evolveetfs.com/cany/.

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Source: Getty Images Credit: Nuthawut Somsuk

ENDNOTES

  1. “Retirement planning,” Financial Consumer Agency of Canada, April 10, 2025; https://www.canada.ca/en/financial-consumer-agency/services/retirement-planning.html
  2. Pareto, C., “Mutual Funds vs. ETFs: Key Differences and Investment Insights,” Investopedia, August 31, 2025; https://www.investopedia.com/articles/exchangetradedfunds/08/etf-mutual-fund-difference.asp
  3. Boyte-White, C., “ETF vs. Mutual Fund Fees: How to Compare Them,” Investopedia, June 27, 2025; https://www.investopedia.com/articles/investing/102915/why-are-etf-fees-lower-mutual-funds.asp
  4. Hill, J.M., Kashner, E. & Nadig, D., “A Comprehensive Guide to ETFs (2nd Edition): Module 1: ETF Features and Evolving Landscape,” CFA Institute Research Foundation, 2025; https://rpc.cfainstitute.org/sites/default/files/docs/research-reports/hill_rf_brief_2025_etfs-evolving_module-1_2ed_online.pdf
  5. Ta, T-H., Cheng, J., Yang, K. & Redman, P., “OSC ETF Study: An Empirical Analysis of Canadian ETF Liquidity and the Effectiveness of the Arbitrage Mechanism,” Ontario Securities Commission, June 2025; https://www.osc.ca/sites/default/files/2025-06/pub_20250619_osc-etf-study.pdf
  6. Ita, D-A., “How Are ETF Fees Deducted?,” Investopedia, April 28, 2025; https://www.investopedia.com/ask/answers/071816/how-are-etf-fees-deducted.asp
  7. Soubeyran, S. & Marshall, R., “Fixed Income Insights,” FTSE Russell, July 2025; https://www.lseg.com/content/dam/ftse-russell/en_us/documents/market-insights/fixed-income/canada/fixed-income-insight-report-july-2025-canada.pdf
  8. Kagan, J., “Understanding the Canadian Dividend Tax Credit: A Complete Guide,” Investopedia, September 07, 2025; https://www.investopedia.com/terms/d/dividendtaxcredit.asp
  9. Baker, B. & Kennedy, E., “Covered call funds: Here’s how they work,” Bankrate, February 05, 2025; https://www.bankrate.com/investing/covered-call-funds/
  10. “Tax treatment of mutual funds,” Canada Revenue Agency, July 24, 2025; https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-12700-capital-gains/completing-schedule-3/tax-treatment-mutual-funds.html
  11. Moskowitz, D., “How ETF Dividends Are Taxed,” Investopedia, August 24, 2025; https://www.investopedia.com/articles/investing/061615/how-etf-dividends-are-taxed.asp

 

DISCLAIMER

Published October 14, 2025.

Evolve Funds Group Inc. is the investment fund manager and portfolio manager. All funds described herein is offered by Evolve Funds Group Inc., and distributed through authorized dealers.

The information contained herein is a general description and is not intended to be specific investment advice to any particular investor nor intended to be investment or tax advice. You should not act or rely on the information contained herein without seeking the advice of an appropriate professional advisor. The information contained herein is intended for informational purposes as a summary only, does not constitute an offer to sell any securities or a legally binding obligation, it is qualified entirely by, and should be read in conjunction with, the more detailed information appearing in the prospectuses found on the Evolve Funds Group Inc website at https://evolveetfs.com/

*Leverage increases risk.

Commissions, trailing commissions, management fees and expenses all may be associated with exchange traded funds (ETFs) and mutual funds. Please read the prospectus before investing. ETFs and mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

Certain statements contained herein are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what Evolve Funds Group Inc. and the portfolio manager believe to be reasonable assumptions, neither Evolve Funds Group Inc. nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.

Certain information contained herein is obtained from third parties. Evolve Funds Group Inc. believes such information to be accurate and reliable as of the date hereof, however, we cannot guarantee that it is accurate or complete or current at all times.  The information provided is subject to change without notice.