The Hamilton Capital Global Bank ETF (HBG) currently has exposure to 27 U.S. banks, spread across 21 different states, representing 42% of the ETF. As we have written previously, we favour a portfolio drawn from the universe of over 200 U.S. mid-cap banks over their larger peers because they: (i) are more rate-sensitive, (ii) are growing earnings faster, and (iii) are merging. This quarter underscored –…
Commentary: HFG
HBG: Raising U.K. Exposure
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…
U.S. Banks: Another Tough Quarter for Mega-Caps as All Four Experience Negative Q/Q EPS Growth (and Four-Year Near-Zero Growth Trend Persists)
On February 7th, 2017, we will be launching the Hamilton Capital Global Financials Yield ETF (HFY). It is the aspiration of HFY to generate “REIT-like yields, with positive rate sensitivity”. Therefore, we anticipate that HFY would have close to zero exposure to the four mega-cap banks primarily while their yields are very low. There are nearly 400 global financials with yields in excess of 5%, and…
HBG: Reducing European Exposure on Italian Referendum Uncertainty
November 22, 2016 by Jennifer Mersereau Since the Hamilton Capital Global Bank ETF (HBG;TSX) launched, the ETF has limited its exposure to Italy owing to the banking sector’s significantly higher volatility, as well as HBG’s preference for exposure to European countries with higher/reliable dividend yields (i.e., we favour banks with lower regulatory and capital risk). This limited exposure has been despite Italy being one of the…
On HBG, Post-Brexit Rebound Portfolio Changes: Increasing Cash by Reducing South America; U.S.
As previously disclosed, the Hamilton Capital Global Bank ETF (HBG) entered the Brexit referendum vote on June 23rd with ~12% cash and materially underweight U.K. banks (see our July 6th HBG Manager Comment). This provided an opportunity to strategically deploy cash/add positions after the “Leave” side declared victory and global bank stocks declined sharply. In the two trading days following the Brexit vote, the global banks…
On HBG: With Focus on Mid-Caps, U.S. Bank Holdings Generate 13% Y/Y EPS Growth in Q2 – Significantly Outpacing Sector
Over time, we expect to have 50% exposure to North America in the Hamilton Capital Global Bank ETF (TSX; HBG). As stated in our note, “HBG: Post-Brexit Portfolio Changes” (July 6, 2016), we went underweight Canada (to 0%) and increased our exposure to the U.S. (to 44%) heading into Q2 earnings season. Entering earnings season, HBG had positions in 26 U.S. banks, of which 19 were…
HBG: Post-Brexit Portfolio Changes
The Hamilton Capital Global Bank ETF (HBG) held almost 12% cash leading up to the Brexit vote on June 23rd, which provided an opportunity to strategically add positions after the “Leave” side declared victory and equity markets and bank stocks declined sharply. From Thursday June 23rd to Monday June 27th, the global banks experienced a sharp correction, falling 11%. The European banks took the brunt of…
Thoughts on Brexit (Entering Referendum with 12% Cash; Underweight U.K.)
In the Hamilton Capital Global Bank ETF (HBG; TSX), we went underweight U.K. banks heading toward the Brexit referendum, with just 3% of exposure; over time, we would expect this to be closer to 5-7% (see our HBG Manager Comment, “U.K. Banks: Remaining Underweight for Brexit as CDS Spreads/Polls Diverge”, June 8th). Here are some preliminary thoughts on implications of Brexit, particularly as related to HBG. First, the…
On HBG, Significantly Higher Capital Levels than Canada/U.S. Banks
One of the objectives of the Hamilton Capital Global Bank ETF (HBG; TSX) is to pay regular/quarterly dividend income (supported by limited covered call writing) and, as a result, the fund emphasizes (higher) dividend paying banks. HBG also focuses on banks with higher capital ratios, particularly common equity tier 1 ratio (CET1), which is – by far – the most important to global investors (and regulators). The higher…
U.K. Banks: Remaining Underweight for Brexit as CDS Spreads/Polls Diverge
Given the United Kingdom’s superior long-term growth profile and favourable demographics, we would expect the Hamilton Capital Global Bank ETF (HBG; TSX) to – over time – have an allocation to U.K. banks of between 5 and 7%, including the ‘challenger’ banks. That said, since the fund was launched, the portfolio weighting to U.K. banks has been closer to 3% as we seek to reduce the…
In Q2 Earnings, Laurentian Bank Outperforms Larger Peers
Following Q1 quarterly earnings season, we made two portfolio changes with respect to the Canadian bank portfolio. First, we reduced our portfolio weighting from ~15% to ~12% (in favour of certain U.S. mid-cap banks). Second, we swapped out a large-cap Canadian bank with Laurentian Bank (LB). We explained these changes in the following two short HBG Manager Comments: Reducing Energy Exposure; Going Modestly “Underweight” Canadian Banks and…
Weighted Average Central Bank Rate of ~100 bps = Monetary Flexibility
Broadly speaking, Hamilton Capital Global Bank ETF (HBG; TSX) seeks to invest in banks with higher expected EPS growth, which generally means banks domiciled in the countries with the highest GDP growth rates. Importantly, as we highlighted in our “Key Themes in Global Banking”, we also favour countries with independent central banks, especially those with higher central bank rates, which provides crucial flexibility in monetary policy.…