Supported by active management, the Hamilton Capital Global Bank ETF (HBG) continues to enjoy material outperformance. The since-inception returns have exceeded the global banks index by ~11%[1], despite comparatively lower drawdowns relative to major indices. In the past month we made two noteworthy adjustments to the ETF’s country weightings.

On February 14^th we posted an HBG Comment disclosing that we had recently reduced our weighting to the U.S., from 46% to 41%, after the massive post-election rally, in favour of U.K. banks. We also lifted our GBP pound currency hedges, as the CAD/GBP ratio was near an all-time (post-Bretton Woods) high. These changes proved beneficial.

First, since those changes were made, the U.S. large-cap and regional/mid-cap banks declined ~3% and ~5%, respectively[2]. Second, the U.K. banks materially outperformed, as the FTSE 350 Banks Index increased by over 6% (in CAD)[3].

Post pullback, on May 5^th we increased our exposure to the U.S., which now represents ~47% of the net asset value. We also slightly reduced our U.K. bank exposures post-rally, while also reducing our cash position by 2%. More recently, on May 9^th, the Australian banks suffered a large correction as a result of surprise budgetary measures. In response, we increased our exposure to Australian banks from ~5% to ~8%.

Notes

[1] Returns measured from January 25, 2016 to April 30, 2017 and compared to the total return for the KBW Global Banks Index (GBKXN) translated to CAD.
[2] Source: Bloomberg. Returns for the large-cap and mid-cap banks represented by the total return for the KBW Bank Index (BKX) and KBW Regional Banking Index (KRX), respectively, from February 14^th to May 5^th.
[3] Source: Bloomberg. Total return for the FTSE 350 Banks Index (F3Bank), translated to CAD, from February 14^th to May 5^th.

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.