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Bank towers in Toronto (Kevin Van Paassen/Kevin Van Paassen/The Globe and Mail)
Bank towers in Toronto (Kevin Van Paassen/Kevin Van Paassen/The Globe and Mail)

ETFs

Canadian banks enter period of seasonal strength Add to ...

The period of seasonal strength for the Canadian bank sector is approaching. One of the easiest ways to invest in the sector is to own a basket of bank stocks held within an exchange traded fund.

Equityclock.com shows that the better of two periods of seasonal strength each year for Canada’s financial service stocks is between the last week in February and the last week in May. Average return during the past nine periods was 8.5 per cent plus a dividend. The period of seasonal strength includes the reporting of fiscal first-quarter results by Canada’s biggest banks for the period ended Jan. 31st and the reporting of fiscal second-quarter results for the period ending April 30th.

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Prospects for the seasonal trade at the beginning of the period of seasonal strength this spring are not great. Consensus estimates show that Canada’s top six banks on average are expected to show no earnings gain on a year-over-year basis when they report fiscal first-quarter results. The banks begin to report earnings this week.



Bank of Montreal

Consensus estimate: $1.34

Actual last year: $1.30

Expected report date: Feb. 28



National Bank

Consensus estimate: $1.81

Actual last year: $1.80

Expected report date: March 1



Royal Bank

Consensus estimate: $1.10

Actual last year: $1.24

Expected report date: March 1



Toronto Dominion Bank

Consensus estimate: $1.75

Actual last year: $1.74

Expected report date: March 1



Bank of Nova Scotia

Consensus estimate: $1.14

Actual last year: $1.10

Expected report date: March 6



CIBC

Consensus estimate: $1.92

Actual last year: $1.95

Expected report date: March 8

* Source: Consensus estimates provided by Zacks Investment Research



Prospects for fiscal second-quarter results are more encouraging. Consensus estimates show an average earnings gain on a year-over-year basis of 6.3 per cent.

Canadian investors have a wide variety of exchange traded funds that trade mainly on their bank content.

Best known and most actively traded ETF in the sector is iShares S&P/TSX Capped Financial Services Index Fund . Weight of the banks in the index is 75.9 per cent. The fund holds 25 securities. Largest holdings in the fund in order of significance are Royal Bank, Toronto Dominion, Bank of Nova Scotia, Bank of Montreal and Canadian Imperial Bank of Commerce. Dividend yield is 3.13 per cent. Management expense ratio is 0.55 per cent.



Claymore offers the Equity Weight Banc and Lifeco ETF . The ETF holds Canada’s top six banks and top four insurance companies. Positions are rebalanced semi-annually. The banks represent 60 per cent of the weight in the fund. Dividend yield is 6.54 per cent. Management expense ratio is 0.55 percent.

BMO Capital offers the BMO S&P/TSX Equal Weight Banks Index ETF . The index is equally weighted in Canada top six banks. Dividend yield is 3.53 per cent. Management expense ratio is 0.55 per cent.

Horizons offers two leveraged products based on the daily performance of the S&P/TSX Capped Financial Services Index. The Horizons S&P/TSX Capped Financial Bull + ETF is designed to realize twice the daily upside return on the index. The Horizons S&P/TSX Capped Financial Bear + ETF is designed to realize twice the daily downside return on the Index. Management expense ratio is 1.15 per cent.

On the charts, the S&P/TSX Capped Financial Services Index has a positive technical profile - with qualifications. Intermediate trend is up. Support is at 172.70 and resistance is at 181.85. The index trades above its 50- and 200-day moving averages and is close to completing a bullish “Golden Cross” when its 50-day moving average moves above its 200-day moving average. Strength relative to the TSX Composite Index has been positive since mid-November. However, short-term momentum indicators are overbought and have rolled over. Preferred strategy is to accumulate on weakness closer to its 50-day moving average at 173.45, a scenario that is likely to evolve during the fiscal first-quarter earnings reporting season.









Don Vialoux is the author of free daily reports on equity markets, sectors, commodities and Exchange Traded Funds. . Daily reports are available at www.timingthemarket.ca/. He is also a research analyst for Horizons Investment Management Inc. All of the views expressed herein are his personal views although they may be reflected in positions or transactions in the various client portfolios managed by Horizons Investment Management.

Follow on Twitter: @EquityClock

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