Canadians: This US Bank ETF Offers Diversification, Value, and Monthly Income


January 4, 2024

The early part of 2023 saw a wave of depositor panic following the collapse of three small-to-midsize banks. On March 10, 2023, the California Department of Financial Protection and Innovation seized Silicon Valley Bank (SVB) and placed it under the receivership of the Federal Deposit Insurance Corporation (FDIC). Silvergate Bank and Signature Bank were also forced to liquidate in early 2023, succumbing to the aftershocks of the collapse of the FTX cryptocurrency exchange.

North American bank stocks suffered turbulence in the weeks and months that followed the banking crisis. Moreover, the top financial institutions in Canada and the U.S. were faced with the most aggressive interest rate tightening policy in nearly two decades. While higher rates have bolstered profitability on the credit side, they have also constrained investment and hindered consumers.

Today, I want to zero-in on the Harvest US Bank Leaders Income ETF (HUBL:TSX) and explore why this US Bank ETF is worth consideration in late 2023. Let’s jump in.

Where do US banks stand in late 2023?

The depositor panic that struck in the beginning of 2023 has largely abated as we approach the final weeks of the year. Instead, depositors are on the hunt for higher return alternatives for their cash deposits in a tightening interest rate environment. Fortunately, withdrawals from US banks have become much more subdued in the second half of the year.

While the threat of bank default has largely passed from the minds of investors, there are still dangers that are capping bank stock performance. The Federal Reserve also put additional liquidity facilities in place in response to the early 2023 banking crisis, which should mitigate the risks of banks facing significant losses due to withdrawal activity going forward.

The July 2023 reforms to the Basel III Endgame standards were implemented, in part, as a response to the banking crisis earlier this year. Some of these new regulatory requirements include raised capital requirements. Regional and midsized banks in the US will be subject to more rigorous regulations after the collapse of some of the largest middle-tier banks in the beginning of 2023. Banks will also face headwinds in the form of slower growth and higher interest rates that are expected to continue through to the middle of 2024.

On the more positive side, bank stock valuations are historically attractive at the time of this writing. The macroeconomic situation may be mixed, but the financial institutions in this ETF have been profit machines in the 21st century. The current high interest rate environment does present challenges, but over the long term these top banks should continue to flourish. Indeed, while high interest rates may limit credit growth, they also contribute to improved profit margins. Market researcher Deloitte projects that financial institutions will face challenges in 2024, but banks remain on solid footing.

What are the benefits of holding the HUBL ETF?

It is important for investors to understand what constitutes value in the current market. Price-to-book value is calculated by dividing the current closing price of the stock by the current quarter’s book value per share. Meanwhile, the price-to-earnings ratio is calculated by dividing the market value price per share by the company’s earnings per share. The HUBL ETF possessed an average price-to-earnings ratio of 10.5 at the time of this writing.

Shares of the HUBL ETF have dropped 19% year-over-year as of mid-afternoon trading on Thursday, January 4, 2024. However, the ETF has jumped 6.8% month over month. The bank stocks held in this fund currently boast historically attractive valuations with both average forward price-to-earnings and price-to-book ratios that are at the low end of their long-term respective ranges. Investors who are seeking out value in the current market climate might want to consider the HUBL ETF today.

Canadians who invest in the HUBL ETF will gain exposure to a core dividend-paying US financials portfolio. The ETF contains a diversified portfolio of large-cap US banks and financial stocks. Moreover, the ETF offers attractive monthly income through the employment of an active covered call strategy. The HUBL ETF last paid out a monthly distribution of $0.0833 per unit. That represents a current yield of 8.99% as at Wednesday, January 3, 2024.


For Information Purposes Only. All comments, opinions and views expressed are of a general nature and should not be considered as advice and/or a recommendation to purchase or sell the mentioned securities or used to engage in personal investment strategies.

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