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 declined 16% (KBW Global Bank Index, GBKXN), with European banks leading the way down 21%.
After Severe Brexit Correction, HBG Increased U.S. Bank Exposure by 8% …
After the large correction, HBG reweighted its European positions back up to pre-Brexit levels (i.e., ~25% of NAV) and, more significantly, went overweight U.S. banks (over 40% of NAV). Specifically, we increased HBG’s U.S. bank allocation by a highly material 8%, which included adding five new positions. This shift was funded by (i) reducing cash, and (ii) eliminating HBG’s already underweight exposure to Canadian banks, which had significantly outperformed during the Brexit correction (like their Australian and Indian bank counterparts).
… and Now, Following Bounce in Banks Back to Pre-Brexit Levels, HBG Moves Back to 12% Cash
Since then, the global banks, as measured by the GBKXN Index, have rallied 18%. During this rally, the U.S. banks have materially outperformed their Canadian peers (U.S. mid-cap banks outperformed by 9%, while U.S. large-caps outperformed by 11%).
Following this large post-Brexit bounce, we have: (i) reduced HBG’s U.S. exposure, although it remains overweight, and (ii) sold positions in two South American banks that had rallied 40% and 24% since the Monday following the UK referendum vote. We are evaluating opportunities to add Canadian banks (although HBG’s exposure remains at zero at this time).
The net effect of the aforementioned changes has raised HBG’s cash from 4% to 12%.
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.