Top performing Canadian Bank ETFs in 2021
In this article we list the top performing Canadian Banks ETFs. We also shed some light on an honorable mention, Hamilton's HCAL ETF.
The Canadian banks prove to be robust and resilient as they managed to keep their heads above water during the 2008 financial crisis. Unlike other banks globally, Canadian Banks did not suspend their dividends and at the time, they did not increase them. Fast forward 13 years, Canada's top banks decided to increase dividend payouts. This came after a two-year break following an economic recession triggered by the COVID-19 pandemic.
In this article we list the top performing Canadian Banks ETFs. We also shed some light on an honorable mention, Hamilton's HCAL ETF.
Top 7 Performing Canadian Banks ETFs in 2021
- Horizons Equal Weight Canada Banks Index ETF (HEWB): 40.22%
- BMO Equal Weight Banks Index ETF (ZEB): 38.35%
- RBC Canadian Bank Yield Index ETF (RBNK): 37.79%
- Hamilton Canadian Bank Mean Reversion Index ETF (HCA): 35.96%
- CI First Asset CanBanc Income Class ETF (CIC): 33.96%
- iShares Equal Weight Banc & Lifeco ETF (CEW): 33.53%
- BMO Covered Call Canadian Banks ETF (ZWB): 30.40%
Hamilton enhanced Canadian Bank ETF (HCAL ETF)
Hamilton ETFs sponsors seven ETFs, one multi-sector fund and six in the financial services sector. In this article we will cover two ETFs: Hamilton Canadian Bank Mean Reversion Index ETF (HCA, in the top 7) and Hamilton Enhanced Canadian Bank ETF (HCAL).
HCAL advertises offering investors higher dividends and growth. The fund provides exposure to Canada's "Big Six" banks. Meanwhile, HCA tracks the Solactive Canadian Bank Mean Reversion Index TR.
While adding 25% of leverage, HCAL invests 125% of its assets in HCA. HCAL does not employ derivatives when adding the 25% leverage. Unlike other ETFs that make use of leverage, the fund borrows cash from a Canadian financial institution.
HCAL promises the opportunity of capital appreciation coupled with enhanced income yield. It has a target dividend yield of 6% per annum, but it currently stands at 4.94% (monthly distributions).
The ETF's aim is to yield 1.25 times the index's performance by using leverage. It scales up its holdings in constituent banks by borrowing cash rather than using derivatives.
Hamilton ETFs’ AUM tripled in 2021 as the firm announced on November 4. Total AUM exceeded the $1 billion CAD. HCLA returned 60.4% in its first year (ended October 14). The strong performance contributed to HCAL’s AUM rising to over $250 million. It is worthy to note that HCAL was not included in the top 7 list above due to its leverage component, despite having surpassed most of the ETFs in the list with a return 44.92% year to date.
Trackinsight’s data reveals that as of December 3rd, AUM stand at $289 million CAD and the ETF stirred $204 million CAD YTD.
Key parameters to consider:Total expense ratio: 0.65%
- Total AUM: $289 million CAD
Yield: 4.94% - Distributions: Monthly
- Holdings: 125% in Hamilton Canadian Bank Mean Reversion ETF
The Index behind HCA and HCAL
HCA and HCAL follows the Solactive Canadian Bank Mean Reversion Index. Mean reversion suggests that asset prices will return to their long term-averages. Market technicians often rely on this theory, in the context of buying low and selling high.
Solactive Canadian Bank Mean Reversion Index follows a rules-based strategy that seeks to exploit mean-reversion tendencies of the banking sector.
The index tracks the top 6 Canadian Banks as measured by their market capitalization. The difference between share price and the 200-day moving average of each security determines its weighting in the index.
Solactive Canadian Bank Mean Reversion Index Holdings:
- Toronto-Dominion Bank (27.46)
- Bank of Nova Scotia (27.29%)
- Royal Bank of Canada (26.17%)
- Bank of Montreal (6.70%)
- National Bank of Canada (6.24%)
- Canadian Imperial Bank of Commerce (6.15%)
