With improving GDP growth and monetary policy backdrop in Europe and lower bank valuations, we have increased the exposure to high quality European banks in the Hamilton Capital Global Financials Yield ETF (HFY). Specifically, we (i) increased European bank exposure by ~700 bps, (ii) reduced “other financials” in the U.S. by ~200 bps, and (iii) reduced European insurance by ~400 bps. As a result of these and other minor changes, our overall exposure to Europe increased by 300 bps and global banks by almost 600 bps, respectively.
In early December, we rebalanced the ETF (see “HBG and HFY Manager Comment: Reducing REITs, Australia, Increasing Earnings Outlook”), where we added to U.S. and European financials at the expense of REITs and Australia, both of which have struggled since that time. These recent changes are a continuation of that rebalance. Overall, since the last rebalancing in December, the portfolio-weighted EPS growth has risen from ~16% to ~20%, owing to a combination of higher EPS estimates (for a variety of reasons, including the recent U.S. tax changes) and shifts in positioning.
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.