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Vanguard VFH versus buying Canadian banks?

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  • Sep 13th, 2012 8:55 pm
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Banned
Jan 2, 2009
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Vanguard VFH versus buying Canadian banks?

Vanguard has a US ETF (VFH) that tracks financial institutions. The P/E is 12 right now, which seems cheaper than the Canadian banks.

The alternative is buying a relatively inexpensive Canadian bank like CIBC, or possibly a Canadian financial ETF if I can find one.

Just wondering if anyone has any insight into which would be a better choice for
a) an unregistered account
and
b) a TFSA?
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Feb 15, 2008
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Calgary
brian.gerson wrote: Vanguard has a US ETF (VFH) that tracks financial institutions. The P/E is 12 right now, which seems cheaper than the Canadian banks.
Careful there. US banks generally make their money from speculating on interest rate changes as they run huge duration gaps in their portfolios and perform maturity transformation as an ordinary matter of business.

Canadian banks generally make their money off of fees, and run books that have zero or almost zero duration gap. They do not perform maturity transformation.

A P/E of 12 may 'seem' cheaper than Canadian banks, but if/as long-term interest rates start going up again, the US banks face massive headwinds, while Canadian banks will just keep collecting spreads and fees as though nothing happened.

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