Insights & Commentary

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…

One Chart: U.S. Bank M&A Doubles in 2019 (and Why We Expect More)

In the 10+ years since the global financial crisis, deal values in U.S. bank M&A have been slow to reach pre-crisis levels. This is notable since in the nearly 25 years preceding the financial crisis bank M&A was an important theme (particularly between 1995 to 2007) as the chart below highlights. However, in 2019, we saw the first meaningful pick-up, with deal values rising to $59…

Hamilton Global Financials Yield ETF (HFY): Strong Q4 Closes out an Excellent Two Years

For the quarter ended December 31, 2019, the Hamilton Global Financials Yield ETF (HFY) returned 4.1% including distributions. In 2019, HFY returned 21.6%, beating the Canadian banks by 750 bps[1]. It also beat its benchmark, the KBW Financial Sector Dividend Yield Total Return Index (in CAD), which returned 15.0%. HFY is also coming off a strong two years where markets and the financial sector both experienced one large…

Notes from India: All is Well in the World’s Fastest Growing Market

We had the opportunity to meet the management teams of a dozen Indian banks, insurers and asset managers in the financial capital of Mumbai, India last month. Nearly a year since our last meetings with senior bank executives and notwithstanding the recent slowing of economic growth, management teams were optimistic of India’s medium to long-term GDP growth outlook. The optimism was driven by a structural market…

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…

HFA: Identical Return to the Canadian Banks with Much Lower Volatility (and Lower Correlations)

The Hamilton Australian Financials Yield ETF (HFA) recently celebrated its one-year anniversary. Although the global financials and the Canadian banks experienced significant volatility since its launch in December 2018, HFA has produced consistent monthly returns and dividends as well as identical returns to the Canadian banks, but with much lower volatility (and relatively low correlations). As we have previously written, with nearly identical return/volatility profiles over…

U.S. Bank M&A: Another Accretive MOE, Another Positive Market Reaction

On Monday, this year’s third (sizable) U.S. bank merger-of-equals (“MOE”) was announced, continuing a trend we expected following similar transactions early in 2019. We have previously written that after a multi-year period of muted merger activity that U.S. bank consolidation – particularly among mid-cap banks – was poised to accelerate. We have cited this theme as impacting the U.S. mid-cap financials sector generally and the banking…

U.S. Mid-Caps: Yield Curve False Alarm? 9th Straight Quarter of 10%+ EPS Growth

Since Hamilton U.S. Mid-Cap Financials ETF (USD) (ticker: HFMU.U) was launched in September 2017, the yield curve has flattened. Some market participants have taken this broader market signal to be an accurate predictor of a recession and by extension a credit cycle for banks. However, those interpreting the flattening of the yield curve (spread between the yield on the US 10 year and the Fed funds…

Australian Financials: History of Strong/Stable Dividend Growth

The Australian financial sector is among the highest quality and strongest in the world (and very similar to that of Canada). Moreover, Australia is one of the wealthiest countries in the world with GDP/capita nearly 20% higher than that of Canada. It is also forecast to be one of the world’s fastest growing developed economies in 2020 (at 2.4%), providing a supportive backdrop to the financial…

13th Straight Quarter of Double-Digit EPS Growth; Valuations at Five-Year Lows

Hamilton Global Bank ETF (ticker: HBG) holdings reported portfolio-weighted EPS growth of 10% Y/Y[1], driven by strong U.S. banks fundamentals (~60% weight) and a diversified portfolio of global banks (~40% weight). This is the 13th consecutive quarter of double-digit portfolio-weighted EPS growth for HBG. The strong growth was led by U.S. mid-caps and bank holdings in India, Norway and select European countries. However, despite this strong…

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