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

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Dec 4, 2011
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Posted in high-yield thread but am seriously considering replacing my individual bank stocks with HCAL next week. As stated above it is a good spot to launch this and the volatility of Canadian banks at 1.25 is still materially lower than US banks per the prospectus.
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May 11, 2014
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Hamilton has some very interesting ETFs. An Australian bank ETF? TSE:HFA

Could be an interesting play if you believe in an overall recovery in Australian banks. Since their COVID-19 response was much more successful and business and flight connections with NZ, Japan, South Korea and Singapore being re-established, it could be a decent alternative play, although I do still have concerns on their health.
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xgbsSS wrote: Hamilton has some very interesting ETFs. An Australian bank ETF? TSE:HFA

Could be an interesting play if you believe in an overall recovery in Australian banks. Since their COVID-19 response was much more successful and business and flight connections with NZ, Japan, South Korea and Singapore being re-established, it could be a decent alternative play, although I do still have concerns on their health.
Very interesting indeed.
I also like the way HFT is allocated. Hamilton financials innovation.
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As I posted in the high-yield thread, I switched all my individual canadian bank stocks for HCAL yesterday. Keep in mind I am 50 years old and this fits my risk profile, holding this for 10 years at least. I know this is extremely boring compared to what some people invest in here but I am quite optimistic about my strategy.
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admiralackbar wrote: As I posted in the high-yield thread, I switched all my individual canadian bank stocks for HCAL yesterday. Keep in mind I am 50 years old and this fits my risk profile, holding this for 10 years at least. I know this is extremely boring compared to what some people invest in here but I am quite optimistic about my strategy.
Realistically, it's not a 'boring' strategy in the least if you consider the leveraged portion. Sure you aren't picking individual stocks but then again, you aren't picking a standard bank ETF (either market or equal weight) either. The standard bank ETFs are what I would consider boring!
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May 31, 2018
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This and ZWB would be a nice way to play Canadian banks for some of our income stream. Some leverage, some covered calls, some medium MER...what's not to like at these prices?
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The liquidity seems low on these ETFs. The churning will trigger tax consequences in a cash account.
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If Hamilton thinks this is the good strategy going forward, why is it this rather than the previouss HCB strategy? What has changed in two years?
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FarmerHarv wrote: This and ZWB would be a nice way to play Canadian banks for some of our income stream. Some leverage, some covered calls, some medium MER...what's not to like at these prices?
The only problem is both suffer capital wise in a down market for banks. I would argue that both of these products aren't a long time hold position but rather more of a market timing vehicles - ZWB when the bank market is flat or trending slightly upward and HCAL for upward trending markets or flat markets with a prospect of an upward movement (ie like now). HCAL would be a disaster in a downward moving market.
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John47 wrote: If Hamilton thinks this is the good strategy going forward, why is it this rather than the previouss HCB strategy? What has changed in two years?
The previous strategy didn't include leverage while this one does and leverage seems more attractive given the current macro-economic conditions where banks are basically at the bottom with record low spreads and high potentials for defaults. If the spreads widen, or the default situation improves, the banks should move upwards in terms of capital appreciation so, with the additional 25% leverage, those upwards movements will be boosted by 25%.

Previously, with the banks at higher levels, a leverage play like this would have meant that the recent declines in the banks would have resulted in a 25% greater decline in HCAL holders due to the leverage.
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Jul 30, 2012
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FarmerHarv wrote: This and ZWB would be a nice way to play Canadian banks for some of our income stream. Some leverage, some covered calls, some medium MER...what's not to like at these prices?
craftsman wrote: The only problem is both suffer capital wise in a down market for banks. I would argue that both of these products aren't a long time hold position but rather more of a market timing vehicles - ZWB when the bank market is flat or trending slightly upward and HCAL for upward trending markets or flat markets with a prospect of an upward movement (ie like now). HCAL would be a disaster in a downward moving market.
ZWB (Covered Call) is designed to outperform the Bank Group performance in a downward trending market. The idea is Calls will be made at higher prices as the underlying Bank share prices are falling. This does not mean that it won't decline with the underlying holdings but the logic is the Call writing will mitigate some of the loss(s).

As for HCAL itself, time will tell but I think HCA likely wasn't achieving the provider goals. In theory, I think the scenario is more complicated than needed if you consider Canadian Banks good long-term holds. One has to believe in the methodology itself (monthly rebalancing of poorer performers) which I am less convinced of given how the banking sector usually undergoes stock rating/changes on a Quarterly basis. On exercise, I have done my own backtest strategy (20+ years) using bank(s) annualized performance & discounts/premiums to P/E ratios.

I have handily outperformed the Banking group by using the top tier (RY, TD, BNS) and adding/selling partial positions to one/any of them when I believed their respective discounts/premiums to long-term average P/E's were unwarranted. To be frank, BMO & CM have been shown to be chronic performance laggards over the long-term and have always traded at lower P/E multiples (over the longer term) regardless of individual stock movements.

If one could go back in time, buying and simply holding NA would have been the right strategy but I view it as too regional for my liking.
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DealRNothing wrote: ZWB (Covered Call) is designed to outperform the Bank Group performance in a downward trending market. The idea is Calls will be made at higher prices as the underlying Bank share prices are falling. This does not mean that it won't decline with the underlying holdings but the logic is the Call writing will mitigate some of the loss(s).
Here's why I said what I said, from a Globe article a few years ago on covered call ETFs - Don’t be tempted by covered call ETF yields -
Advocates of covered call funds argue that they perform best in sideways or falling markets, and that's true – to a degree. If a stock tumbles, the strategy provides a buffer against losses, but only to the extent of the premium collected. Moreover, to keep premium income flowing in, the ETF will then have to write calls at lower strike prices, which again limits the upside if the shares rebound.
In other words, in a falling market, in order to keep the premium yield coming in, more and more of any upside needs to be given up as new calls are written.
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Jan 9, 2017
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Actually, if you just hold RY or TD, both will outperform ZWB since ZWB's inception.

I think I will just hold banks themselves. If one really wants to leverage, can always borrow HELOC to do it, especially now the interest rate is so low.
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dropby wrote: I think I will just hold banks themselves. If one really wants to leverage, can always borrow HELOC to do it, especially now the interest rate is so low.
Already did that back in June ;)
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Jul 30, 2012
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craftsman wrote:
The only problem is both suffer capital wise in a down market for banks. I would argue that both of these products aren't a long time hold position but rather more of a market timing vehicles - ZWB when the bank market is flat or trending slightly upward and HCAL for upward trending markets or flat markets with a prospect of an upward movement (ie like now). HCAL would be a disaster in a downward moving market.
DealRNothing wrote:

ZWB (Covered Call) is designed to outperform the Bank Group performance in a downward trending market. The idea is Calls will be made at higher prices as the underlying Bank share prices are falling. This does not mean that it won't decline with the underlying holdings but the logic is the Call writing will mitigate some of the loss(s).

As for HCAL itself, time will tell but I think HCA likely wasn't achieving the provider goals. In theory, I think the scenario is more complicated than needed if you consider Canadian Banks good long-term holds. One has to believe in the methodology itself (monthly rebalancing of poorer performers) which I am less convinced of given how the banking sector usually undergoes stock rating/changes on a Quarterly basis. On exercise, I have done my own backtest strategy (20+ years) using bank(s) annualized performance & discounts/premiums to P/E ratios.

I have handily outperformed the Banking group by using the top tier (RY, TD, BNS) and adding/selling partial positions to one/any of them when I believed their respective discounts/premiums to long-term average P/E's were unwarranted. To be frank, BMO & CM have been shown to be chronic performance laggards over the long-term and have always traded at lower P/E multiples (over the longer term) regardless of individual stock movements.

If one could go back in time, buying and simply holding NA would have been the right strategy but I view it as too regional for my liking.
craftsman wrote: Here's why I said what I said, from a Globe article a few years ago on covered call ETFs - Don’t be tempted by covered call ETF yields -

In other words, in a falling market, in order to keep the premium yield coming in, more and more of any upside needs to be given up as new calls are written.
Yes, the article reinforces my point and the strategy that a Covered Call strategy will under perform in a rising market (not outperform as you had initially suggested). Given forum interest in ZWB as well, I feel the clarification important. "New" Calls under perform when underlying share price(s) rise. Providing there is a downward trend (sustainable), a Covered Call (partial) strategy as ZWB will "outperform" a straight holding of the underlying positions as newer Calls will be written at "higher" contracts as the share price(s) fall. Covered Call strategy under performs when there is a reversal uptrend due to "pre-written" Calls are at lower levels. ZWB will typically under perform the benchmark/underlying holdings when

1) The underlying share prices are rising and
2) "Greater" share price volatility

There is no free lunch, however, "down is down" and a (partial) Call strategy can mitigate some capital loss but of course not most.

My view on ZWB is that performance should have been better during periods of downtrends (and overall results) and would not be a vehicle for myself. If one truly believes Banks are near trough levels, ZEB (between the 2 - BMO offerings) would be the better choice (and possibly HCAL - too early to assess). It is not as clear cut if you do Fundamental analysis as not all (CDN) Banks are "cheap" at current levels.
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DealRNothing wrote: Yes, the article reinforces my point and the strategy that a Covered Call strategy will under perform in a rising market (not outperform as you had initially suggested).
I stated that it was good in a flat or trending slightly upward market. A slightly upward market may only mean a 1% share price appreciation which may be more than made up with in the premiums in the yield - the current yield for ZEB is 3.73% while ZWB is 5.93% according to Google. But even in the current situation, over the past 6 months in a rising bank price environment, the price performance difference was only 0.6% (ZEB - UP 14.75% vs ZWB - UP 14.15%) while the yield was much higher for ZWB.
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Jul 30, 2012
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craftsman wrote: I stated that it was good in a flat or trending slightly upward market. A slightly upward market may only mean a 1% share price appreciation which may be more than made up with in the premiums in the yield - the current yield for ZEB is 3.73% while ZWB is 5.93% according to Google. But even in the current situation, over the past 6 months in a rising bank price environment, the price performance difference was only 0.6% (ZEB - UP 14.75% vs ZWB - UP 14.15%) while the yield was much higher for ZWB.
Timing and trends are everything. Most investors use Banks as core positions... 5-Year performance ZWB 33.94% / ZEB 42.06% (total return adjusted for dividends). ZEB out performance is clearer on longer term trends / upward charts.

5Y Total Returns_ZWB_ZEB
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craftsman wrote: The previous strategy didn't include leverage while this one does and leverage seems more attractive given the current macro-economic conditions where banks are basically at the bottom with record low spreads and high potentials for defaults. If the spreads widen, or the default situation improves, the banks should move upwards in terms of capital appreciation so, with the additional 25% leverage, those upwards movements will be boosted by 25%.

Previously, with the banks at higher levels, a leverage play like this would have meant that the recent declines in the banks would have resulted in a 25% greater decline in HCAL holders due to the leverage.
Right, but what does it say about their research and strategy when they're starting an ETF and closing it down two years later? Where's the confidence in their approach?
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John47 wrote: Right, but what does it say about their research and strategy when they're starting an ETF and closing it down two years later? Where's the confidence in their approach?
Many of these types of decisions aren't based on actual fund performance but rather fund sales and whether those sales can support the funds themselves. The fact that they basically kept the fund strategy with the merger (ie the new fund also invest the most in the lowest performing banks) but now they throw in leverage shows that they still believe in the strategy. After all, if they didn't believe in the strategy, they would have just closed up the fund and called it a day.

But we might be looking at from the wrong point of view... The other fund was HCA which used a similar strategy as HCB but instead of a more basic invest in the lowest performing bank, they stated that all banks will revert to the mean of all of the banks eventually. The two strategies are very similar to each other with the same basic idea - low performing banks will eventually catch up and high performing banks will eventually trip up! It's really cutting hairs between the two strategies (ie you really have to get into the weeds to understand the difference) so that very fact might have caused too much confusion for investors which resulted in lower than expected sales for both. So, the solution was to merge the two together and for some reason or another throw in some leverage.

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