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

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.

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.

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?

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?

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.

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).

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.

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.

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.

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).

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.

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.

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?