Financial Select Sector SPDR Fund (XLF)

The banks are not at their long term peaks. If we had another 25% upside on many of them he would be saying to get out of them. Insurance companies have further to run if interest rates really get going.

(Top Pick Dec 23/14, Up 11.55%) He got in a little early because the sector got it hard. This is a reasonable trade. It really lasts until Mid-April and he will look to exit at that time.

US banks ETF? This is an excellent choice, because seasonality is really clicking in from about the middle of December right through until April of each year. The ETF’s that are most useful is the SPDR Financial (XLF-N), or, if looking for large caps, SPDR S&P Bank (KBE-N). KBE looks very interesting on the charts right now.

US financials. We are coming into the year end for banks and will be coming out with their announcements mid-January. They are cheap relative to the Canadian banks. They have been participating in the run and are starting to outperform and have been doing so for the last couple of months relative to the S&P 500. He is expecting this to do well right up to the middle of April. Chart shows a positive trend line, which is going up on a steady, steady basis.

Banks have really under-performed versus the S&P 500. This is due to regulation issues out there and interest rates remaining lower than expected. On valuation you are looking at 1.35X Book Value compared to the TSX financial sector at 1.85X. With the strengthening US economy, a recovering housing market, lower loan loss provisions and better credit issues, this should do quite well.

(Top Pick Feb 20/14, Up 2.85%) Seasonal period for US financials Jan 19 to Apr 13, different from Canadian. It ends on first earnings announcement. This year they pulled off in late March. He sold a few days early.

(Top Pick Mar 13/14, Up 0.32%) Seasonal strength lasted until the first week of April, when he got out.

This one works well from around the 3^rd week in January right through until the 3^rd week in April of each year. This year has an extra kicker. The financial services sector has been kept down during the last couple of years because of regulatory requirements. One of them is to have certain reserves to certain levels before they can increase their dividends. The testing of these reserve requirements will come through very shortly and, once they are through, we have pretty good reason to believe that major US banks will be able to increase their dividends coming into April.

Best time to own is now until mid April. US banks have been raising dividends (those that can have them). Financial stocks will participate in the market, which will do well.

Likes this ETF. Thinks the large-cap banks will continue to do well in the US. They are going to benefit from credit conditions getting better with a closing market recovery and, just generally, the consumer getting better. Believes the US economy will grow at 3% this year and banks will benefit from this.

Diversified American ETF? This is the one he would recommend. Financials will participate very well in a rising economic climate, and as well, they will have inflation protection qualities. They will be the best in industry, but they will participate and be well above the median. Feels the Cdn$ will continue to go down and, over the next year, he can see it down to $0.90 and probably has further to go. This ETF will probably give you some additional income pick up from the exchange rate differential.

Financials enter a period of strength from December all the way through to March. This one has been outperforming the market and we are well within its period of seasonal strength. If you can get it on weakness, all the better.

XLF-N or ZUB-T for a rising US$? Feels Cdn$ is going to outperform the US$ next year. Canada will benefit from a stronger US economy. If you are looking for a rising US$, the choice would be ZUB, but he is not expecting a rise in the US$.

[XLI-N or XLF-N] It depends on what happens with QE and bank regulations. Industrials should have less volatility than financials over 1 year. Over 5 years financials should do better.

This is the financial services, the sub sector in the US. He still likes US banks. This could easily double to get back to where it was prior to the financial crisis. If you own, the Cnd$ will eventually go down which will be in your favour as well.