Investing

New ETF - Hamilton Captial Canadian Bank Dynamic Weight HCB - for Canadian Bank investors

  • Last Updated:
  • Oct 17th, 2020 8:01 pm
Deal Addict
Mar 4, 2009
1767 posts
596 upvotes
Toronto
Stevewithalaptop wrote: Newbie question.

Is very low volume on an etf a concern?
Newbie myself but the biggest concern would be high bid and ask spread - more info
Deal Fanatic
User avatar
Jun 19, 2009
6027 posts
1891 upvotes
Scarborough
Stevewithalaptop wrote: Newbie question.

Is very low volume on an etf a concern?
No, due to the structure of ETFs, bid-ask will be close to NAV of the fund due to some arbitrage opportunity if it gets too over/underpriced.
[OP]
Deal Expert
Jan 27, 2006
17180 posts
9930 upvotes
Vancouver, BC
Stevewithalaptop wrote: Newbie question.

Is very low volume on an etf a concern?
It's to be expected since it's a relatively new offering with little advertising support at this time so very few people know about it. I would expect that as awareness grows, the volumes will as well.
Sr. Member
Jul 1, 2006
754 posts
575 upvotes
Low volume doesn't really matter on ETFs. The main thing to keep in mind is that the last price quoted may be quite different from the current price. The only way to really know on low volume ETFs is to look at the current bid-ask midpoint, which *should* ideally be at the NAV if the market makers are doing their jobs properly.

To prevent surprises, I typically use limit orders when trading ETFs. I generally just use the ask price when purchasing and the bid when selling. Not trying to outsmart anyone or get a better deal, just making sure that I don't get caught but an unexpected swing.
Deal Addict
Jan 18, 2014
1485 posts
487 upvotes
Rouyn-Noranda
Volume was very high yesterday --- 187,010 shares traded.

Had rarely exceeded 10,000 shares before that.

What explains that?
[OP]
Deal Expert
Jan 27, 2006
17180 posts
9930 upvotes
Vancouver, BC
John47 wrote: Volume was very high yesterday --- 187,010 shares traded.

Had rarely exceeded 10,000 shares before that.

What explains that?
Awareness. Some major player or players might be moving from another ETF or replacing bank stocks with this product. You need to see if there was higher volume in the other bank ETFs as well.
Deal Addict
Jan 18, 2014
1485 posts
487 upvotes
Rouyn-Noranda
Thanks for starting this thread and bringing the fund to our attention.

Have you decided to invest in it?
If so, do you mind saying what percentage of your portfolio?
And in what account?
[OP]
Deal Expert
Jan 27, 2006
17180 posts
9930 upvotes
Vancouver, BC
John47 wrote: Thanks for starting this thread and bringing the fund to our attention.

Have you decided to invest in it?
If so, do you mind saying what percentage of your portfolio?
And in what account?
I'm waiting to see what the performance is like for at least 3 months before putting money to work.

As part of any balanced portfolio, the percentage is really up to you in regards to what you should be using for your situation and how comfortable you are with that number. As for account, to me it doesn't really matter.
Deal Addict
Jan 18, 2014
1485 posts
487 upvotes
Rouyn-Noranda
Thanks for sharing!

I'm thinking of buying some on margin in a taxable account. Use the interest costs against the dividends.

Any drawbacks to doing this?
[OP]
Deal Expert
Jan 27, 2006
17180 posts
9930 upvotes
Vancouver, BC
John47 wrote: Thanks for sharing!

I'm thinking of buying some on margin in a taxable account. Use the interest costs against the dividends.

Any drawbacks to doing this?
Yep... in a rising interest environment, you have two risk:
1. Margin cost will go up with rates;
2. Stock prices will go down with rates after a certain point with banks.

While you can write off the interest cost against the investment gains, the percentage difference may not be enough to counter the level of risk involved.
[OP]
Deal Expert
Jan 27, 2006
17180 posts
9930 upvotes
Vancouver, BC
airmail wrote: Anyone invest?
I'm still in a holding pattern... According to Google, the 3 month performance of HCB vs RBNK has HCB being ahead by about 1/2 percentage point while RBNK has a slightly better yield (0.4% higher). Since yield is on an annual basis, HCB may, if the current trend continues, outperform RBNK by a full percentage point or two for the year. NOTE> the Google yield may not be correct as HCB's fact sheet states that they are yielding 3.6% so the RBNK's may not be correct as well.
Deal Addict
Jan 18, 2014
1485 posts
487 upvotes
Rouyn-Noranda
The distribution yields on these ETFs --- HCB, RBNK ---- are very low compared to their underlying holdings.

HCB: 3.6%
RBNK: 4%


Yet, their holdings all yield at least that much:

CIBC - 5.1%
BNS - 4.9%
RY - 4%
TD - 4%
BMO - 4%
NA - 4.2%

Both ETFs have heavier weightings in CIBC and BNS, which should pull their yield up.

What's going on? Is there a reasonable explanation for this?
Deal Addict
Jan 18, 2014
1485 posts
487 upvotes
Rouyn-Noranda
craftsman;
five months on --- the yield remains low --- $0.47 monthly distribution * 12 / $15.09 ETF price = 3.76% yield.

Same for RBNK --- 4% yield.

Meanwhile, the overweight banks --- CIBC and BNS --- are yielding 4.9% and higher.

Having a hard time justifying holding these ETFs versus just holding the underlying stocks.

Curious to read your take on them at this point!
[OP]
Deal Expert
Jan 27, 2006
17180 posts
9930 upvotes
Vancouver, BC
John47 wrote: craftsman;
five months on --- the yield remains low --- $0.47 monthly distribution * 12 / $15.09 ETF price = 3.76% yield.

Same for RBNK --- 4% yield.

Meanwhile, the overweight banks --- CIBC and BNS --- are yielding 4.9% and higher.

Having a hard time justifying holding these ETFs versus just holding the underlying stocks.

Curious to read your take on them at this point!
The whole point of these two ETFs is to automate a trading strategy so that there is a better longer-term total return (ie dividends + stock price) in one investment vehicle. The generic backtested results (ie not exactly how each fund does the trading or valuations) has been shown to work. The rub here is in these types of situations two things typically fail:

1. Short term results may vary;
2. returns based on either dividends or stock price may not keep up with other methods.

And of course, the backtesting was only done for the generic strategy and not the specific one for each of the ETFs.

Looking at the latest details on HCB from their website - https://hamilton-capital.com/etf/hcb/ - shows the following as of July 24, 2019-

* Top 3 banks held - RY, CM, BMO
* MER is 0.55%
* Yield is 3.79%
* The distribution has been increasing from the initial $0.042 when it was first announced to the current $0.047.

Now if we compare those numbers to something like the ZEB which is BMO's Equal weight bank ETF, actually start seeing something odd... the low yield (in comparison to the banks themselves) is in the same range as HCB but slightly lower (about 0.1%) while the price-performance is slightly better for ZEB for the lifespan of HCB. Remember that this investment strategy is for the long-term and in theory, HCB should outperform ZEB over the long-term.

Now if we compared HCB to RBNK for the past year to date, things get interesting... HCB actually beats RBNK in terms of stock price increases by almost 3/4 % point. However, if you go back to when HCB was started so it would include the December downdraft, RBNK outperformed HCB so it seems that RBNK may be better in a crash-type situation while HCB performs better when the market is moving upwards. NOTE> ZEB outperformed HCB for the YTD numbers.

So, what are the final points at this point in the program?
A. ETFs are a terrible way to get yield in terms of what the underlying stock's payout and what the investors get from the ETF.
B. Short term performance doesn't differ much.
C. There's not enough of a track record to justify either ETFs on just there performance alone.... might get better as the strategy works over a longer period of time.
Deal Addict
User avatar
Aug 4, 2014
3420 posts
3631 upvotes
Toronto, ON
So HCB was merged with HCA in less than two years. Don’t know why (didn’t attract enough interest?), just wanted to check its performance after seen today’s yet another new ETF announcement:
The Hamilton Canadian Bank 1.25x Leverage ETF (HCAL), which will debut on the Toronto Stock Exchange on Wednesday, invests in all Big Six bank stocks. The holdings are weighted according to performance: Poor performers are overweighted, based on persuasive long-term data showing that lagging bank stocks tend to make up lost ground.

But what’s novel here is that the fund employs 25-per-cent leverage. For every $100 invested you will get $125 worth of exposure to the Big Six. The sweetener: Leverage will boost the dividend, to more than 6 per cent based on current bank stock prices.

Leverage works both ways, of course. Just as it will produce bigger gains during upswings, it will magnify your losses during downturns. It will also cost you: The fund’s management expense ratio is 0.65 per cent, cheaper than most mutual funds but higher than most ETFs.

So why swing for the fences?
[OP]
Deal Expert
Jan 27, 2006
17180 posts
9930 upvotes
Vancouver, BC
freilona wrote: So HCB was merged with HCA in less than two years. Don’t know why (didn’t attract enough interest?), just wanted to check its performance after seen today’s yet another new ETF announcement:
In theory, with the current conditions, the leverage may work well as the banks are admittedly in a low spot in their performance this year, especially with lower interest rates. When the rates recover, we should see a good increase in the banks so the leverage would be good.

As for the MER, yes it's higher but with the higher dividends, that should more than makeup for the difference provided the banks stay where they are or move up.
Sr. Member
Nov 16, 2013
740 posts
214 upvotes
GTA
As per Globe, MER is 0.65%

Though over all strategy looks good

Top