WEBINAR INVITE: We will be hosting a webinar "Canadian Banks & Covered Calls: Do they really work?" on three different dates. To register, please click on one of the following times:
Tuesday, August 18 at 2:00pm EDT
Thursday, August 20 at 2:00pm EDT
Tuesday, August 25 at 2:00pm EDT

Supported by active management, the Hamilton Capital Global Bank ETF (HBG) continues to enjoy material outperformance. The since-inception returns have exceeded the global banks index by ~11%[1], despite comparatively lower drawdowns relative to major indices. In the past month we made two noteworthy adjustments to the ETF’s country weightings.

On February 14th we posted an HBG Comment disclosing that we had recently reduced our weighting to the U.S., from 46% to 41%, after the massive post-election rally, in favour of U.K. banks. We also lifted our GBP pound currency hedges, as the CAD/GBP ratio was near an all-time (post-Bretton Woods) high. These changes proved beneficial.

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First, since those changes were made, the U.S. large-cap and regional/mid-cap banks declined ~3% and ~5%, respectively[2]. Second, the U.K. banks materially outperformed, as the FTSE 350 Banks Index increased by over 6% (in CAD)[3].

Post pullback, on May 5th we increased our exposure to the U.S., which now represents ~47% of the net asset value. We also slightly reduced our U.K. bank exposures post-rally, while also reducing our cash position by 2%. More recently, on May 9th, the Australian banks suffered a large correction as a result of surprise budgetary measures. In response, we increased our exposure to Australian banks from ~5% to ~8%.


Notes

[1] Returns measured from January 25, 2016 to April 30, 2017 and compared to the total return for the KBW Global Banks Index (GBKXN) translated to CAD.
[2] Source: Bloomberg. Returns for the large-cap and mid-cap banks represented by the total return for the KBW Bank Index (BKX) and KBW Regional Banking Index (KRX), respectively, from February 14th to May 5th.
[3] Source: Bloomberg. Total return for the FTSE 350 Banks Index (F3Bank), translated to CAD, from February 14th to May 5th.

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.

 

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