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…
Insights: Hamilton ETFs
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.…
On HBG, U.S. Mid-Cap Bank Holding YDKN “Rumoured to Explore Sale”
On May 25th, media reports indicated that Yadkin Valley Bank – a U.S. mid-cap bank holding of the actively managed Hamilton Capital Global Bank ETF (HBG; TSX) – had engaged an investment bank to “explore a sale”. The North Carolina based bank has ~$7.5 bln in assets, a ~US$1.4 bln market capitalization and represents ~1.5% of the fund. Private equity firms own ~13% of the company.…
On HBG, Five Reasons Why We Don’t Own C, JPM, or BAC
In the Hamilton Capital Global Bank ETF (HBG), we do not have positions in Citigroup (C), JPMorgan (JPM), or Bank of America (BAC), despite the fact that these banks are very inexpensive trading near or below TBV. Their lower valuations are directly linked to the fact their ROEs remain below their cost of capital. Just how low is profitability for these three mega-cap banks? ROEs in…
Minimizing Exposure to Troubled Global Investment Banking Model
In our recent Insight, “Why the Global Investment Banking Model is Under Siege” (March 24, 2016), we outlined the struggles facing the global investment banking sector. Hardly a week goes by without an important development for the likes of JPM, BAC, C, MS, GS, or in Europe, UBS, CSGN, DBK, BARC, be it the restructuring of business models, low returns, or additional regulatory pressures. Even in…
Reducing Energy Exposure; Going Modestly “Underweight” Canadian Banks
As explained in Hamilton Capital Global Bank ETF (HBG)’s prospectus, it is anticipated, over time, that HBG’s geographic mix will roughly represent: 50% North America, 25% Europe and 25% other countries. Although completely flexible, within the 50% allocation to North America, we generally aspire to a geographic mix of Canadian banks (15%) and U.S. banks (35%). Given our concerns over rising direct/indirect losses from energy lending,…
March 2016 Update | Australian Banks: Profitable Banking Sector in a Wealthy Country
In this note, we provide a review of the Australian economy and banking system, highlighting the most important issues facing the sector. Australia is a wealthy country with an oligopoly banking sector, with banks known for their profitability, strong credit metrics, and high dividend yields. Current headwinds facing the economy, which will impact the banking system, include elevated real estate prices and a downturn in the…