Are you looking to diversify your portfolio with Canadian banking stocks? The Hamilton Enhanced Canadian Bank ETF (HCAL.TO) might be an intriguing option. Let’s delve into what HCAL ETF is all about, its unique approach, and how it might fit into your investment strategy.
What is HCAL ETF?
Hamilton Enhanced Canadian Bank ETF aims to provide investors with a unique way to participate in the performance of the Canadian banking sector. It’s designed to track 1.25 times the returns of the Solactive Equal Weight Canada Banks Index. Essentially, for every 1% increase (or decrease) in the index, HCAL aims to increase (or decrease) by 1.25%. It achieves this by investing directly in Canadian banks and employing a modest 25% cash leverage. Unlike some other funds, HCAL does not use derivatives.
Key Highlights of HCAL
Attractive Yield: HCAL features a yield of 7.37%, paid out to investors monthly. This aspect may be appealing to those looking for consistent income from their investments. The monthly distribution of dividends provides a regular income stream. This can be a key consideration for investors focused on income generation or cash flow.
Equal-Weight Exposure: HCAL provides equal-weight exposure to Canada’s “Big Six” banks. This means that the ETF doesn’t focus more heavily on any single bank, aiming to reduce the risk associated with concentration in one or a few stocks. This approach leads to a more balanced investment in the sector, distributing investment risk across multiple entities.
Volatility: The volatility of HCAL is a bit higher than that of the big six Canadian banks, despite the use of 25% cash leverage. This indicates that the fund, while seeking to amplify returns through leverage, does not substantially increase volatility. For investors, this could mean that while the fund aims for higher returns through leverage. It may not expose them to significantly higher short-term risks associated with market fluctuations.
A Good Fit for Investors Who:
Seek Enhanced Growth: The additional leverage means that gains can be magnified. If you believe in the long-term growth of Canadian banks and are comfortable with the associated risks, HCAL could enhance your portfolio’s growth potential.
Desire Higher Monthly Income: With its monthly payouts and attractive yield, HCAL can be a source of regular income, potentially higher than many other income-generating investments.
Are Comfortable with Modest Leverage: I think 25% cash leverage is modest compared to some aggressive investment strategies. Ensure you understand and are comfortable with this before investing.
How to invest in HCAL ETF?
HCAL trades on the Toronto Stock Exchange (TSX) and is eligible for a variety of investment accounts including RRSP, RRIF, DPSP, RDSP, FHSA, RESP, and TFSA. If you’re interested in reinvesting your dividends, I recommend setting up a Dividend Reinvestment Plan (DRIP) through your brokerage.
HCAL’s Holdings
As of the last update (December 29, 2023), HCAL’s primary holding is the Hamilton Canadian Bank Equal-Weight Index ETF, constituting 125.1% of its weight due to the leverage employed. This ETF in turn invests proportionally in the “Big Six” banks of Canada:
- Canadian Imperial Bank of Commerce
- Bank of Montreal
- Royal Bank of Canada
- National Bank of Canada
- Toronto-Dominion Bank
- Bank of Nova Scotia
In my view, these banks are foundational to the Canadian economy and have historically been considered stable investments.
As at December 29, 2023
| TICKER | NAME | WEIGHT |
| HEB | Hamilton Canadian Bank Equal-Weight Index ETF | 125.1% |
Leverage is via cash borrowing (not derivatives), provided by a Canadian financial institution.
HEB HOLDINGS
Hamilton Canadian Bank Equal-Weight Index ETF invests in Canada’s “big six” banks
| NAME | WEIGHT |
|---|---|
| Canadian Imperial Bank of Commerce | 18.1% |
| Bank of Montreal | 17.3% |
| Royal Bank of Canada | 16.7% |
| National Bank of Canada | 16.6% |
| Toronto-Dominion Bank | 16.0% |
| Bank of Nova Scotia | 15.3% |
HCAL ETF Distributions
Please consult issuers’ website for up-to-date data
| EX-DIVIDEND DATE | PAID | FREQUENCY | AMOUNT |
|---|---|---|---|
| 2023-12-28 | 2024-01-08 | Monthly | $0.1270 |
| 2023-11-29 | 2023-12-07 | Monthly | $0.1270 |
| 2023-10-30 | 2023-11-07 | Monthly | $0.1270 |
| 2023-09-28 | 2023-10-06 | Monthly | $0.1270 |
| 2023-08-30 | 2023-09-08 | Monthly | $0.1270 |
| 2023-07-28 | 2023-08-08 | Monthly | $0.1270 |
| 2023-06-29 | 2023-07-10 | Monthly | $0.1270 |
Conclusion
HCAL offers a unique take on investing in Canadian banks. Its combination of leverage, equal weighting, and focus on the “Big Six” could provide an enhanced return profile along with monthly income. As always, ensure it aligns with your investment objectives and risk tolerance, and consider discussing with a financial advisor if you’re unsure. Happy investing!