Opinions
Larry Berman CFA, CMT, CTA
BMO EQL WGT US BANK HDGD TO CAD IDX ETF
ZUB-T
DON'T BUY
Jan 29, 2018
$32.320
Stock price when the opinion was issued
E.T.F.'s
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PARTIAL BUY
Basket of US retail and diversified banks. Don't have to worry about currency moves. He like the USD, so he'd prefer not hedged. Banks have gotten hit on recession worries. An opportunity here, though you might be a quarter or two early. Financials tend to perform well early in the cycle, though we're not there yet. Very cheap at 1.4x book value. Pick away at it. Best opportunities come when people are most unsettled. He's picking up some US financials right now. Yield is 2.3%.
E.T.F.'s
WAIT
Largest in the category. ZBK is unhedged, but there's a hedged version as well (ZUB). He'd opt to start hedging risk away a bit more, given what seems a concerted effort to weaken the USD. Gives you diversification in the US banks, instead of Canadian banks, as it's a different market and different economy.
Banks are very sensitive to the economy, and we're in a recessionary period. He'd wait for positive market follow throughs before allocating capital. If you're in it for the long term, you could buy this on the pullback. Interestingly, US banks are down about 21%, whereas Canadian banks (as in ZEB) are down 9%.
E.T.F.'s
BANK-T vs. ZUB-T. Exposure to US or International banks. The yield curve is telling us we are headed toward a recession 6 to 18 months out. The yield curve is flattening so banks’ net interest margins will not improve. He does not want to chase them here.