Insights & Commentary

HFMU.U Posts 32% EPS Growth Y/Y; 13% Ahead of U.S. Large-Cap Financials

In Q4 2018, the holdings in the Hamilton Capital U.S. Mid-Cap Financials ETF (USD) (ticker: HFMU.U) recorded year-over-year portfolio-weighted EPS growth of a robust 32%[1], supported by excellent fundamentals including rising margins,  solid volume growth and the reduction in the U.S. corporate tax reduction (which added roughly ~18% to this growth rate). As we explained in our insight “U.S. Bank M&A: Implications from the Largest Deal…

Canadian Banks: Five Takeaways from BBT/STI, Accelerating U.S. Bank M&A

Last week, in our insight “U.S. Bank M&A: Implications of the Largest Deal in a Decade”, we explained why we expect U.S. bank consolidation will accelerate following the BB&T/SunTrust merger, and reasons why such activity will predominately be within the small and mid-cap banks. In this insight, we offer five takeaways for the Canadian banks – BMO, CM, RY, and TD – and their U.S. expansion…

Indian Banks Overview: Large Diverse Sector, Operating in a High Growth Market

In this insight, we provide a review of the Indian economy and banking system, highlighting the most important issues facing the sector. India is a large emerging market with a fast-growing banking sector comprised of over 35 publicly traded banks divided into two main categories: state-owned (over 20) and private banks (over 15). For many years, India has been – and is forecast to remain –…

U.S. Bank M&A: Implications from the Largest Deal in a Decade

On Thursday morning, BB&T (BBT) and SunTrust (STI), two of the largest banks in the U.S. Southeast, announced a merger of equals (“MOE”). With an aggregate deal value approaching US$66 billion, the transaction marks the largest bank M&A deal since the 2008 financial crisis and will create the 6th largest bank in the United States. In this update we provide our thoughts including the main takeaways…

Notes from India: Financials Poised to Benefit from World’s Fastest Growing Economy

We met the management teams of over a dozen Indian banks, insurers and asset managers in the financial capital of Mumbai, India in December. With real GDP growth of over 7% over the past decade, India is one of the largest emerging markets and forecast to be the fastest growing major economy in 2019. Not surprisingly, the management teams we met were very upbeat. Exposure to…

Australian Financials: Regulatory Clarity Arrives

The Hamilton Capital Australian Financials Yield ETF (HFA) was launched in December 2018, with a targeted yield of 6.5% or higher paid monthly (aided by covered calls). The Australian financials have a history of long-term outperformance versus the Canadian financials with lower volatility. In fact, the Australian banks outperformed the Canadian banks during the global financial crisis. One main reason Australian financials have consistently outperformed their…

Pref ETFs Falter (Again): Why HFA/HCB are Logical Switch Candidates for Monthly Income

Following our October launch of the Hamilton Capital Canadian Bank Variable-Weight ETF (HCB), today we launched the Hamilton Capital Australian Financials Yield ETF (HFA). Both of these ETFs pay monthly dividends. HFA seeks to generate a yield of 6.5% or higher from a portfolio of higher dividend-paying Australian financials operating in arguably the world’s strongest and safest financial sector (aided by covered calls). Of note, the…

Australian Banks Outperformed the Canadian Banks During the Global Financial Crisis

It is well known that the Canadian banks performed very well during the financial crisis relative to their global peers, and the U.S. banks in particular. However, what is less well known is that the Australian banks did even better than the Canadian banks, generating higher returns from 2007 through 2009, the years encompassing the financial crisis (see chart below). As we explain in “Dividend-Heavy Australian…

Dividend-Heavy Australian Financials: History of Outperformance vs. Canadian Peers

All Canadian bank investors know that the sector has experienced very good performance over the past ten to fifteen years. However, most are less familiar with Australia, which actually has a history of long-term outperformance relative to the Canadian financials, with virtually identical volatility. Interestingly, as a testament to the strength of the Australian financial sector, its banks even outperformed the Canadian banks during the global…

HFY: Despite Global Sell-off, 5% Yield Helping HFY Hold in vs. Even the Lowest Beta Countries

In periods of high macro uncertainty/market volatility, certain countries’ financials tend to hold up better – i.e., decline less in corrections. Most prominent among these low beta countries are Canada, Australia and virtually all Northern European countries (HFY has ~20% exposure). These countries are all wealthy and importantly their financial sectors have healthy dividend yields. 2018 has been a very challenging year, with many global financial…

U.S. Financials | Analysts vs. the Markets (as Fundamentals/Stock Prices Diverge)

This has been a tough month for the financials, particularly banks. What made this correction unusual is that throughout October, the financials continued to post very high earnings growth, and with minimal downgrades in estimates/target prices, the ingredients for a sharp sell-off were largely absent. Of the 270 financial services stocks covered by the U.S. broker-dealer, Sandler O’Neill + Partners (SOP), over 70% met or beat…

U.S. Financials | Mid-Caps Longer-Term Outperformance in One Chart

Given the media attention given to the U. S. large-cap financials (e.g., JPM, MetLife, AIG), Canadian investors can’t be faulted for sometimes neglecting to diversify into the very large and varied mid-cap financial sector south of the border. That said, in our view, investors should not overlook this important sub-sector given its long-term history of material outperformance relative to its better known large-cap peers, as evidenced…

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