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 “flatten the curve”.

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).

On this basis, Australia appears to be well ahead of all major countries, including Canada. According to the Australia Financial Review (AFR)[1], the country is leading the world with testing of approximately ~1,000 tests per 100,000 people ahead of Canada (~700 per day), United Kingdom (~200), and South Korea (~800). It also has the lowest positive rate at 1.9% versus 3.7% in Canada and 2.3% in South Korea, implying they have been more successful in mitigating community spread.

The AFR chart below shows that new cases and the percentage increase over the total have been declining, which – if this trend continues – would imply Australia is ahead of most countries in “flattening the curve”. This in turn could mean the negative impact would be less and/or the Australian economy could restart faster.

Hamilton Australian Financials Yield ETF (ticker: HFA) invests in Australian financials, one of the best financial sectors in the world and has a yield of 9.5%.


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.


Notes

[1] https://www.afr.com/politics/federal/deaths-in-new-york-double-in-three-days-australian-cases-near-5000-20200402-p54g92

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