All Canadian bank investors know that the sector has experienced very good performance over the past ten to fifteen years. However, most are less familiar with Australia, which actually has a history of long-term outperformance relative to the Canadian financials, with virtually identical volatility. Interestingly, as a testament to the strength of the Australian financial sector, its banks even outperformed the Canadian banks during the global…
Insights: Canadian Banks
HCB: A New Strategy for Bank Investors (Wealth Professional Article)
Wealth Professional interviewed Rob Wessel, Managing Partner at Hamilton Capital, following the launch of the Hamilton Capital Canadian Bank Variable-Weight ETF (HCB). The interview covers mean reversion trends and how they are incorporated into HCB, how the strategy might lower risk in period of market turbulence. Click here to read more.
U.S. Financials | Mid-Caps Longer-Term Outperformance in One Chart
Given the media attention given to the U. S. large-cap financials (e.g., JPM, MetLife, AIG), Canadian investors can’t be faulted for sometimes neglecting to diversify into the very large and varied mid-cap financial sector south of the border. That said, in our view, investors should not overlook this important sub-sector given its long-term history of material outperformance relative to its better known large-cap peers, as evidenced…
Notes from Chicago: Opinions on the Canadian Banks (part 1)
We recently met with the top management of four Chicago-headquartered U.S. mid-cap banks (see related October 9, 2018 “Notes from Chicago – Three Takeaways from the Windy City (Part 2)”). Given their large presence in this giant MSA, it was not surprising that the Canadian banks and their speculated U.S. expansion plans were a frequent discussion topic. Chicago is the single most important market to Canadian…
Canadian Banks: Mean-Reversion Strategy for Higher Returns/Lower Risk
On October 2nd, 2018, Hamilton Capital will be launching the Hamilton Capital Canadian Bank Variable-Weight ETF (HCB). This ETF will consist of the Big-6 Canadian banks, rebalanced monthly to capitalize on the long-term mean reversion tendencies of the sector. Specifically, it will overweight the three most oversold banks from the prior month (to ~80%) and underweight the three most overbought banks (to ~20%). Please note: The…
CIBC: On PVTB, Why We Agree with the Higher Bid (and Two Reasons Why it Should Not be Raised Further)
In this ETF Comment, we: (a) explain why we agree with CIBC’s decision to increase its bid for PVTB, and (b) provide two reasons why the bank should walk away from their bid, if this new price is not accepted.
Canadian Banks: Why U.S. Mid-Caps are Easier to Acquire (than 10 Years Ago)
In the Hamilton Capital Global Bank ETF (HBG; TSX), we generally seek to hold 50% North American banks, with an emphasis on the ~200 publicly traded U.S. mid-cap banks (those firms with <$100 bln in assets). As of the time of writing, HBG had exposure to 23 U.S. banks representing 43% of the ETF’s net asset value.
WFC: A Canadian Bank Counterfactual as it Enters Year #4 of No Growth
We generally have minimal exposure to the global mega-cap banks primarily because of their very low EPS growth, higher regulatory risk, and relative to their mid-cap peers, materially lower interest rate sensitivity. In this Insight, we explain why we believe “slow growth” WFC basically represents a Canadian bank counterfactual.
Canadian Banks: Revisiting our “End of an Era” Thesis (Five Years Later)
In May 2011, we wrote an essay entitled “The Canadian Banks – The End of an Era”. In this essay – which was excerpted in the Globe and Mail – we explained why the Canadian banks were entering a period in which their two-decade period of double digit EPS/dividend growth was ending. Specifically, we identified three reasons supporting this thesis: (i) the drivers of the sector’s…
Canadian Banks: Housing Correction Concerns Increasing Regulatory Risk
As we have highlighted in numerous Hamilton Capital Insights, regulatory risk is a key risk in global banking, and one we attempt to minimize our exposure. It is most intense for the mega-banks in the U.S. and Europe, particularly those with global investment banking operations (i.e., C, BAC, JPM, CSGN.VX, UBS.VX, DBK.GY, BARC.LN). Although post-crisis, those global banks have been the epicentre of regulatory risk, the recent…
Canadian Banks: More Risky vs. Less Risky Loans in One Chart
At present, the Canadian banks have outstanding asset quality. Although provisions rose notably for the second consecutive quarter in Q2, provision and gross impaired loan ratios remain below long-term averages. With Q3 reporting beginning August 23rd, we believe the market will be focused on two areas of potential deterioration: (i) energy loans (which have been driving higher loan losses), and (ii) Alberta consumer, particularly uninsured.
Why CIBC Needs a Visible Capital Allocation Strategy
Since the end of the credit crisis (i.e., 2009), CIBC has generated core cash EPS growth above its Canadian banking peers as well as a (much) higher ROE. Despite exceeding its peers over the past four years on these important growth/profitability metrics, CIBC continues to trade at a notable P/E discount. So, in light of this post-crisis performance, and a (perceived) below-average risk profile, why does…