Our Hamilton Global Financials ETF (HFG) was the top performing ETF in its category in 2022 and outperformed its domestic competitors and the iShares Global Financials ETF (IXG) over the last two years. During that period, HFG generated a total return of 17.5%, beating every competitor ETF by at least 2.8%[1].
Importantly, not only did HFG outperform its competitor global financials ETFs and the index in 2022; it also outperformed the “lower beta” Canadian banks, highlighting the diversification benefits of global exposures in periods of market turbulence. For Canadian investors, we continue to believe that HFG offers the following benefits: (i) diversification to core Canadian financials positions by geography and themes, (ii) potential for higher EPS growth, and (iii) yield of 4.4%, paid monthly.
From a valuation perspective, HFG appears well positioned relative to the domestic financials, where the consensus portfolio weighted EPS growth for the next two years is 27% (13% CAGR), and the portfolio weighted price-to-earnings multiple is just 10x forward whereas the median Canadian bank has two-year earnings growth of 7% (3% CAGR) and 8.9x forward price-to-earnings ratio[2].
As of year-end, the Hamilton Global Financials ETF (HFG) had the following geographic exposures: ~60% North America, ~8% Australia, ~6% Asia/India (no China), ~6% United Kingdom, and ~20% Europe. By sub-sector, HFG holds ~24% Wealth Management, ~43% deposit taking, ~21% Insurance (life, P&C, brokers, and reinsurance), and ~11% other financials (including ‘blue-chip’ fintech).
Within their financials allocation, we recommend Canadian investors consider HFG as a 10% weighting (i.e., if investors hold 35% financials, HFG as 3.5%).
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A word on trading liquidity for ETFs …
Hamilton ETFs are highly liquid ETFs that can be purchased and sold easily. ETFs are as liquid as their underlying holdings and the underlying holdings trade millions of shares each day.
How does that work? When ETF investors are buying (or selling) in the market, they may transact with another ETF investor or a market maker for the ETF. At all times, even if daily volume appears low, there is a market maker – typically a large bank-owned investment dealer – willing to fill the other side of the ETF order (at the bid/ask spread).
Commissions, management fees and expenses all may be associated with an investment in the ETFs. The relevant prospectus contains important detailed information about each ETF. Please read the relevant prospectus before investing. The ETFs are not guaranteed, their values change frequently and past performance may not be repeated.
Certain statements contained in this insight constitute forward-looking information within the meaning of Canadian securities laws. Forward-looking information may relate to a future outlook and anticipated distributions, events or results and may include statements regarding future financial performance. In some cases, forward-looking information can be identified by terms such as “may”, “will”, “should”, “expect”, “anticipate”, “believe”, “intend” or other similar expressions concerning matters that are not historical facts. Actual results may vary from such forward-looking information. Hamilton ETFs undertakes no obligation to update publicly or otherwise revise any forward-looking statement whether as a result of new information, future events or other such factors which affect this information, except as required by law.
[1] Based on total returns from December 31, 2020 to December 30, 2022. The global financials ETFs universe in Canada is: HFG, FSF, and DXF; IXG returns denominated in US$ terms.
[2] Source: Hamilton ETFs, Bloomberg