Insights on the Global Financials

JPM Investor Day: Capital Return, Tax Reform, and Interest Rates

As we have written in the past, in the Hamilton Capital Global Bank ETF (HBG), we generally prefer mid-cap U.S. banks over their larger peers. With respect to the Hamilton Capital Global Financials Yield ETF (HFY), our U.S. bank allocation is very small (~6%), because yields for the sector are among the lowest in global banking (although we expect them to rise in the next two years). Read More»

Event: Hamilton Capital Opens TSX, Celebrating the Launch of Hamilton Capital Global Financials Yield ETF (HFY;TSX)

On February 8, 2017, Hamilton Capital, and its partners, joined Dani Lipkin, Head, Business Development, Exchange Traded Funds, Closed-End Funds, and Structured Notes, TMX Group to open the market to launch Hamilton Capital Global Financials Yield ETF (HFY;TSX). HFY commenced trading on the Toronto Stock Exchange on February 7, 2017.

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U.S. Banks: Another Tough Quarter for Mega-Caps as All Four Experience Negative Q/Q EPS Growth (and Four-Year Near-Zero Growth Trend Persists)

On February 7th, 2017, we will be launching the Hamilton Capital Global Financials Yield ETF (HFY). It is the aspiration of HFY to generate “REIT-like yields, with positive rate sensitivity”.  Therefore, we anticipate that HFY would have close to zero exposure to the four mega-cap banks primarily while their yields are very low. There are nearly 400 global financials with yields in excess of 5%, and the average yield of these four banks is less than 2%, which is too low to merit inclusion in the fund (although we expect these yields to rise in 2017). As we have written in the past, given their low earnings growth profile, we do not own any in the Hamilton Capital Global Bank ETF (HBG). Read More»

Another U.S. Mid-Cap Bank Holding to be Acquired

Last night, it was announced that another Hamilton Capital Global Bank ETF (HGB) holding was being acquired, the second in 8 months. Along with greater EPS growth, lower regulatory risk, and higher interest rate sensitivity, this highlights one of the other reasons / themes why we prefer the U.S. mid-cap banks to their mega-cap peers: the potential for consolidation. Read More»

Are REITs Set to Underperform the Financials?

We are pleased to announce the launch of the Hamilton Capital Global Financials Yield ETF (HFY), which will begin trading on the TSX on Tuesday, February 7th. The objective of the ETF is to offer attractive distribution potential. Put differently, our aspiration is for the ETF to have “REIT-like yields, but with positive rate sensitivity”. Although REITs were recently separated from certain financial services indices (for example, U.S. financials index), we continue to consider REITs to be part of the “financial services” universe. As such, REITs are part of HFY’s investment universe and the ETF may often have exposure to these firms, both real estate and mortgage REITs. Read More»

Canadian Banks: Why U.S. Mid-Caps are Easier to Acquire (than 10 Years Ago)

In the Hamilton Capital Global Bank ETF (HBG; TSX), we generally seek to hold 50% North American banks, with an emphasis on the ~200 publicly traded U.S. mid-cap banks (those firms with <$100 bln in assets). As of the time of writing, HBG had exposure to 23 U.S. banks representing 43% of the ETF’s net asset value. Read More»

WFC: A Canadian Bank Counterfactual as it Enters Year #4 of No Growth

We generally have minimal exposure to the global mega-cap banks primarily because of their very low EPS growth, higher regulatory risk, and relative to their mid-cap peers, materially lower interest rate sensitivity. In this Insight, we explain why we believe “slow growth” WFC basically represents a Canadian bank counterfactual. Read More»

OCC Letter Shows WFC is Not Out of the Regulatory Woods Yet

As we have written in prior Insights, Wells Fargo (“WFC”) – like its other mega-cap peers – continues to struggle to generate earnings growth. The mega-caps also struggle with regulatory risk; before the recent U.S. election, we cautioned that the risk that regulators were shifting their focus from the capital markets banks to the largest regionals appeared to be rising. WFC was a prime example, coping with a scandal surrounding its cross-selling practices, which prompted our October note, “Is Wells Fargo Un-Investable (for Now)?” in which we explained our concerns about potential material – yet unquantifiable – regulatory risk. Read More»

U.S. Banks: C, JPM, BAC, and WFC Continue Multi-Year Trend of Close to Zero EPS Growth

As we have indicated in prior commentary, we have zero exposure to the U.S. mega-cap banks, primarily because of their very low EPS growth, mid-single digit ROEs (in the case of C and BAC), and very high regulatory risk (see “Five Reasons We Don’t Own C, JPM and BAC”, June 14th). We favour a portfolio of U.S. banks derived from the nearly 200 publicly traded U.S. mid-cap banks given they have greater and more consistent EPS growth, are more rate sensitive, have lower regulatory risk, and are merging. Read More»

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