The Hamilton Global Financials Yield ETF (HFY) continues to thrive in a very challenging market, generating excellent returns, with much lower volatility. Year-to-date, HFY has risen ~13.0%, over 800 bps ahead of its benchmark of higher yielding financials[1]. It is also outperforming with lower downside volatility than the Canadian banks, global financials, U.S. banks (both large and mid-cap), European financials/banks, and major financials indices in Asia (including India, Japan, and China).

Note to Reader: This Insight includes references to certain Hamilton ETFs that were active at the time of writing. On June 29, 2020, the following mergers took place: (i) Hamilton Global Financials Yield ETF and Hamilton Global Bank ETF into the Hamilton Global Financials ETF (HFG), (ii) Hamilton Australian Financials Yield ETF into the Hamilton Australian Bank Equal-Weight Index ETF (HBA); (iii) Hamilton Canadian Bank Variable-Weight ETF into the Hamilton Canadian Bank Mean Reversion Index ETF (HCA), and (iv) Hamilton U.S. Mid-Cap Financials ETF (USD) into the Hamilton U.S. Mid/Small-Cap Financials ETF (HUM).

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HFY’s current yield of 4.09%[2] makes it a good fit for Canadian investors who are seeking diversification from their core Canadian financials holdings. HFY offers diversification, consistent dividend income and modest growth from a blue-chip portfolio of global financial services companies.

Looking further back at performance since the beginning of 2018, HFY has outperformed most major financial indices including the Canadian banks, global financials, European financials/banks and most other relevant indices in Asia (including Japan and China).  

Hamilton Global Financials Yield ETF’s strong absolute performance with comparatively low volatility was achieved despite the challenging backdrop that included protracted US-China trade negotiations, global growth worries, continued political uncertainty in Europe and declining forward rate expectations. With 2019 proving to be a volatile year for the broader equity markets in general and the global financial sector in particular, this outperformance is all the more notable.

Even as macro and policy headlines continue to dominate an otherwise favorable earnings and credit outlook for the financial sector, HFY’s portfolio holdings are forecast to generate portfolio-weighted EPS growth of 9.3% for 2020 and 7.2% for 2021 (and materially higher than the Canadian banks)[3].

A key driver of this outperformance remains HFY’s diversification across financials sub-sectors and regions (15+ countries). The ETF is invested across financials sub-sectors with robust cyclical and secular growth drivers. These include alternate asset managers (~7% weight; geared to resilient flows and capital raising environment), P&C insurers (~10% weight; low rate sensitivity and improved pricing trends), REITs (~5.5% weight; favorable gearing to low interest rates), global exchanges (~3.5% weight; favorable gearing to market volatility and regulatory tailwinds) among others. The ETF’s mix of sub-sectors and country exposures remain valuable tools for portfolio diversification and contribute to HFY’s superior earnings growth and dividend returns[4].

As the chart below underscores, HFY continues to protect capital in a volatile investing environment with returns well above the most important global financial indices, many of which have declined between 4%-8% in August alone versus HFY, which declined 2.7% (the Canadian banks declined 4.1%). The charts below highlight resiliency in the face of challenging markets with HFY outperforming every major country’s financial sector index (including US and Canada). For other performance information, please go to:


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 net asset value plus a spread). The market maker then subscribes to create or redeem units in the ETF from the ETF manager (e.g., Hamilton ETFs), who purchases or sells the underlying holdings for the ETF.

Related Insights

HFY: Despite Global Sell-off, 5% Yield Helping HFY Hold in vs Even Lowest Beta Countries (November 18th, 2018)

HBG/HFY: Outperforming Almost Everything (in a Sea of Red) (October 5th, 2018)

HBG: 12th Straight Quarter of 10%+ EPS Growth; Valuations at Five- Year Low (August 9th, 2019)

U.S. Mid-Caps Continue to Generate Outsized EPS Growth; P/Es at ~20% Discount to 5 Year Average (August 9th, 2019)


[1] The KBW Financial Sector Dividend Yield Total Return Index, KDXTR, in Canadian Dollars through September 5, 2019
[2] As on September 5, 2019
[3] As on September 5, 2019. Based on Bloomberg consensus estimates
[4] 4.09% dividend yield as on September 5, 2019

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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