As all Canadian investors know, the stock prices of the Canadian banks are highly correlated, and the individual banks have generated similar returns over long periods of time. Over the past several decades, the Canadian banks that have underperformed tended to catch up to those that outperformed, and vice versa – i.e., their performance was “mean reverting”. In this Insight, we discuss these mean reversion tendencies…
Insights: Canada
Canadian Banks: Three Vulnerable Loan Exposures (in Charts)
In our Insight, Financials: Does COVID-19 Represent a Growth Scare, Credit Event or Crisis (March 25, 2020), we discussed the implications of the global economy moving swiftly into an undetermined period of negative economic growth. For the banks, we fully expect the result will be a credit cycle. Although the peak of losses and the duration are very much unknown, we believe this credit cycle is likely…
One Chart: Australia Appears to be Flattening the Curve Ahead of Other Countries (including Canada)
In our Insight, “Financials: Does COVID-19 Represent a Growth Scare, Credit Event or Crisis” (March 25, 2020), we discussed the implications of the global economy moving swiftly into an undetermined period of negative economic growth which has caused stocks to fall sharply. One critical variable for every country will be when they can restart their economies, which will be heavily influenced by each country’s ability to…
Financials: Does COVID-19 Represent a Growth Scare, Credit Event or Crisis?
Since we launched our first ETF in January 2016, there have been four significant macro corrections in four years. None of those large and painful corrections represented a crisis, insofar as the declines did not represent a threat to the solvency of the financial sector, either from a lack of liquidity or the destruction of capital. Rather, they were related to the market rapidly (and, in…
Update: HFA Outperforming the Canadian Banks with Lower Volatility (in Charts)
The Hamilton Australian Financials Yield ETF (HFA) invests in one of the world’s best financial sectors, anchored by some of the world’s best capitalized banks. As evidence of the quality of the Australian financial sector, the Australian banks outperformed the Canadian banks during the global financial crisis. This strong historical performance is underpinned by the fact Australia is a higher performing economy, with GDP growth consistently…
One Chart: When/Where the Canadian Banks Spent US$32 bln on U.S. Banks
All Canadian bank investors know that expansion into the U.S. personal and commercial (“P&C”) banking sector remains the focal point of capital deployment for the Canadian banks. In fact, US banking has been – by far – the largest destination of capital deployment since 2004 (when TD Bank acquired a majority stake in Banknorth), with the Canadian banks having spent a huge US$30 bln. The chart…
Canadian Banks: One Chart Showing Higher Volatility Since New PCL Accounting Took Effect
In April we wrote an Insight in which we explained why we believed the volatility of Canadian bank stocks was likely to rise[1]. Specifically, we cited two reasons: (i) rising acquisition risk, and (ii) implementation of the new provision accounting (IFRS 9). Since the first reporting season (February 2018) following the introduction of this new provision accounting, it does appear that the monthly volatility for the…
Cdn/Aust’n Financials: Fraternal Twins w/ Low Correlations & Near Identical Risk Rewards
The Australian financial sector is among the highest quality and strongest in the world. It is also very similar to the Canadian financial sector. Arguably, there are no two financial sectors globally that more closely resemble each other than Canada and Australia. A desire to provide Canadians with exposure to this great sector is why we launched the Hamilton Australian Financials Yield ETF (HFA), which has…
Scotia’s Pacific Alliance and Five Takeaways on Global Growth
Last week, Bank of Nova Scotia reported its Q3 results and its International Banking division generated solid double-digit earnings growth, supported by a strong economic backdrop and acquisitions. Within this segment is the Bank’s operations in the Pacific Alliance, the Latin American trade bloc that includes Peru, Chile, Columbia, and Mexico. This very large emerging markets platform has over $100 bln in loans, generates earnings of…
Canadian Banks: Why Volatility Will Likely Rise (and a Comment on Mean Reversion)
In October 2018, we launched the Hamilton Capital Canadian Bank Variable-Weight ETF (ticker: HCB), which seeks to benefit from the historical mean reversion tendencies of the Big-6 banks, especially in times of greater market volatility. At the end of each month, the three most oversold banks are rebalanced to represent ~80% of HCB, while the three most overbought banks are rebalanced to 20%. HCB’s objective is…
Cdn/Aust’n Banks: Why the Big Housing Short is So Difficult (and the Risk of a “Direct Hit” Remains Low)
In Q4 2018, we expanded our ETF offering to include two ETFs with monthly distributions and exposure to two world-class – and very similar – financial sectors with excellent performance histories. In October, we launched the Hamilton Capital Canadian Bank Variable-Weight ETF (HCB), a rules-based strategy that seeks to capitalize on the historical mean reversion tendencies of the Canadian banking sector[1]. In December, we launched the…
Canadian Banks: Five Takeaways from BBT/STI, Accelerating U.S. Bank M&A
Last week, in our insight “U.S. Bank M&A: Implications of the Largest Deal in a Decade”, we explained why we expect U.S. bank consolidation will accelerate following the BB&T/SunTrust merger, and reasons why such activity will predominately be within the small and mid-cap banks. In this insight, we offer five takeaways for the Canadian banks – BMO, CM, RY, and TD – and their U.S. expansion…