{"id":9333,"date":"2018-03-06T13:22:02","date_gmt":"2018-03-06T18:22:02","guid":{"rendered":"http:\/\/hamilton.fundzen.com\/?post_type=popup&p=9333"},"modified":"2019-01-28T11:52:08","modified_gmt":"2019-01-28T15:52:08","slug":"2018-03-06-u-s-canadian-banks-using-cwb","status":"publish","type":"post","link":"https:\/\/hamilton.fundzen.com\/2018-03-06-u-s-canadian-banks-using-cwb\/","title":{"rendered":"Canadian Western Bank as a U.S. Mid-Cap Proxy"},"content":{"rendered":"\r\n\r\nCanadian Western Bank has achieved highly material long-term outperformance versus its larger peers. In this post, we relate its sizeable outperformance to our preference for U.S. mid-cap banks.\r\n\r\n\r\n\r\n\r\n\r\nIn our January 24, 2018 comment, \u201cU.S. Banks: High\/Low Growth Areas in One Map (i.e., \u2018Follow the Sun\u2019)<\/strong>\u201d, we explained that there are vast demographic differences within the six distinct geographic regions of the United States (five of which are larger than Canada – see Chart 3<\/em>). In this post, we noted that the fastest growing markets have population\/GDP growth 3-4x faster than slower growth markets. These high-growth markets are overwhelmingly located in warmer climates \u2013 hence our title \u201cFollow the Sun\u201d.\r\n\r\n\r\n\r\n\r\n\r\nIdentifying higher growth markets is important because high quality companies operating in regions with superior demographic and economic metrics should, over the long-term, generate revenue\/EPS growth superior to those operating in slow(er)-growth regions. In fact, economic growth can be more important to longer term returns, than say, ROE or business mix.\r\n\r\n\r\n\r\n\r\n\r\nThis brings us to the U.S. mid-cap financials sector, an enormous universe with over 500 publicly-traded firms and a combined market cap of ~US$2 trillion (i.e., as large as the Canadian equity markets). Most U.S. mid-caps operate in a handful of states (i.e., they do not operate on a national scale). Therefore, there are opportunities for active managers to assemble a portfolio of high quality firms with superior growth profiles owing in many cases to the favourable demographics\/GDP growth of the markets in which they operate.\r\n\r\n\r\n\r\n\r\n\r\nWe launched the Hamilton Capital U.S. Mid-Cap Financials ETF (USD)<\/strong> (ticker, HFMU.U<\/strong>), to take advantage of these opportunities. To help explain the benefits of having exposure to the U.S. mid-cap financial sector, we thought we would offer a Canadian example of a high quality mid-cap operating in a high growth region: Canadian Western Bank<\/strong> (CWB<\/strong>).\r\n\r\n\r\n\r\n\r\n\r\nSince May 2002 (when Bloomberg started tracking the S&P\/TSX Composite Diversified Banks Total Return Index, STDBNKR), Canadian Western Bank has outperformed its larger peers by ~200 bps per year \u2013 a highly significant amount.<\/em><\/strong> Specifically, CWB has risen more than 700% over this time, while the Big-6 Canadian banks index has risen closer to 500% (see table).\r\n\r\n\r\n\r\n\r\n
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\"2018-03-06-u-s-canadian-banks-using-cwb\"<\/figure>\r\n<\/div>\r\n\r\n\r\n\r\n\r\nThis outperformance is all the more impressive since this period: (i) \u00a0effectively begins when stock prices for the Big-6 banks were depressed from the TMT1