Stockchase Opinions

Larry Berman CFA, CMT, CTA BMO Equal Weight US Banks ETF ZBK-T BUY Mar 15, 2021

You have credit risk for mortgages. Banks are well provisioned for credit losses, though these might be loosened shortly. The yield curve is steepening so in the short run, banks are more profitable. It's hard to say how much is priced in. Not early but if the yield curve remains steep, banks will do well over the next few years.
$32.000

Stock price when the opinion was issued

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Good time to buy? U.S. Banks ETF. Very popular, very liquid and very good at what it does. A great way for Canadians investos to access U.S. banks quickly and easily. Since it last peak the U.S. banks have been declining on price due to falling rates in the U.S.. When rates are low the banks don't do as well. If you think that maybe this is overdone then try ZBK. But he thinks there's still some downside risk to U.S. banks in particular.
COMMENT

He wouldn't buy the covered call. If you like American banks, buy them individually. He would rather buy ZBK which is a play on American banks without a covered call. Basically, you're paying a premium for covered calls..

WAIT
ZUB-T vs. ZBK-T. If you are thinking long term, he would go into the hedged version. It is not time to step into US banks yet. We will likely make lower lows. You are not owning them for dividend payout these days.
HOLD
Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research.

Higher rates can be good for the financial sector. 
The main concern is whether rates push us into recession. 
Certainly a possibility, but right now the economy is much stronger than most expected, and thus banks should be OK for a while. 
At some point, the narrative is going to shift from higher rates to corporate earnings, and corporate earnings have been OK. 
ZBK we think can be held, but like any equity is not risk-free. 
We think holders should have at least an 18 month timeframe here.  
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BUY ON WEAKNESS
Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research

The US bank sector of course has had a tough year, and the outlook will largely depend on the economy and rates. However, the fund now has an average P/E of 5.5X and an indicated yield of 3.49%. We think this is cheap enough that investors can slowly start buying the sector now. 
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BUY
ZUB and ZBK

Both good, but ZBK gives US dollar exposure.

WEAK BUY

Despite being better diversified, US banking space can be more volatile than Canada's. Achieves more capital growth then an ETF with a covered call strategy. As well, consider some of the active options as offered, for example, from Hamilton.

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Equal weight, where a smaller bank gets the same footprint as a larger bank.

He's held it in the past, not now. Banks have lagged for a long time, but now doing really well. The first phase of the upward swing was due to interest-sensitives doing better with lower interest rates. The second phase is driven by post-election hopes for deregulation and economy-friendly moves.

TOP PICK

It holds the giant banks, now hitting all-time highs. It benefits from economic expansion, rising interest rates, and a new president that is more business-friendly.