In the Hamilton Capital Global Bank ETF (HBG), we expect U.K. banks, including the so-called “challenger banks” over time, to represent between 5-10% of the ETF. However, in HBG’s first year, the prospect of Brexit resulted in much lower weights (generally between zero and 5%). In addition, we also consistently hedged our pound currency exposures.

However, our positioning on the U.K. (and the U.S.) has recently shifted after the powerful post-U.S. election rally. First, we increased our U.K. and Irish bank exposure from ~4% to ~9% and we removed the pound currency hedges. Since HBG was launched, the pound has declined ~20% versus the Canadian dollar. In fact, relative to the CAD, as the chart below highlights, the GBP has reached this level only a few times since currencies became free floating post-Bretton Woods (1971).

Second, after a massive rally in U.S. banks, we reduced our U.S. holdings from ~46% to ~41% as their multiples surged higher in absence of any material change in EPS estimates. We expect to return our U.S. bank weighting to ~50% in the coming weeks/months depending on market movements and developments related to tax reform.

Note: Comments, charts and opinions offered in this commentary are produced by Hamilton Capital and are for information purposes only. They should not be considered as advice to purchase or to sell mentioned securities. Any information offered is believed to be accurate, but is not guaranteed.