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Number Cruncher

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(Getty Images/iStockphoto)
(Getty Images/iStockphoto)


U.S. banks winners in financial services Add to ...

What are we looking for?

Canadian bank stocks have been lacklustre performers this year. The S&P/TSX bank index is down 1 per cent as investors appear to be pricing in a lending slowdown. So let’s see how funds in the financial services equity category have done. This category includes funds that invest domestically as well as offerings with an international mandate.

The screen?

We ranked the category by performance in the year ended June 30. U.S. dollar, segregated, pooled and duplicate versions of funds were excluded. Funds in this category must invest at least 90 per cent of their equity holdings in the financial services sector.

What did we find?


Keeping an eye on U.S. banks proved a winning strategy.

Bank of Montreal’s Equal Weight U.S. Banks Hedged to CAD Index exchange-traded fund posted the best returns of the group, gaining 36.96 per cent in the period.

“I think it is partially because that the fund is U.S.-focused that it has done so well; these banks have outperformed some of their global peers in the last year or so,” said Chris McHaney, a vice-president and portfolio manager at BMO Asset Management Inc.

“A lot of it has to do with the improving U.S. economy over all,” he said. “Particularly the improving housing sector – and that’s where the banks make a lot of their money – where the prospects are looking better, and that’s reflected in their stock prices.”

The BMO fund’s current holdings include many of the largest banks south of the border including Bank of America and Wells Fargo & Co. Its largest position is an Alabama-based banking and insurance company called Regions Financial Corp.

Mr. McHaney is expecting dividend increases and share buybacks from the U.S. banks this year, which will help share prices, but he’s not certain that the ETF can repeat its blockbuster gains.

The second and third place funds have a global focus, but are heavily weighted to the U.S.

The final fund in the list is another BMO offering: The S&P/TSX Equal Weight Banks Index ETF. Canadian banks haven’t seen the same kind of growth as their U.S. counterparts, in part because they fell less during the recession and had less ground to recover.

“The housing and auto sectors have got back to where they were at pre-crisis levels in the U.S., whereas in Canada the economy is slowing a bit,” Mr. McHaney said. He expects that trend to continue.


Financial Services Equity Funds - 1 Year to June 30

Fund Ticker 1-yr
% rtn
(June 30)
% rtn
(June 30)
% rtn
(June 30)
BMO Eq Weight US Banks Hgd CAD Index ETF ZUB-T 37.0% 9.9%
Fidelity Global Financial Servics-B 35.1% 11.3% 1.6%
Investors Global Financial Services-A 31.9% 6.0% -3.2%
iShares Eq Weight Banc & Lifeco Com ETF CEW-T 26.8% 10.0% 6.7%
Dynamic Financial Services Fund 17.9% 7.7% 1.4%
iShares S&P/TSX Cap Financials Idx ETF XFN-T 17.7% 8.9% 5.7%
First Asset Can-Fin Covered Call ETF FXF-T 17.7%
CIBC Financial Companies 17.0% 5.5% 0.9%
Matrix Covered Call Canadian Banks Crp Cl A 15.6%
BMO S&P/TSX Eq Weight Banks Index ETF ZEB-T 11.7% 9.9%
S&P/TSX Total Return 6.8% 5.0% -0.7%
S&P/TSX Capped Financials 13.7% 5.7% 2.1%

* Assets as of May 31, 2013. Source: Lipper


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