It’s the Stanley Cup playoffs for Canadian investors. It was Canadian bank earnings week. The Canadian banks have been on a terrific run, playing catch up after underperforming the TSX Composite in 2022 and 2023. It was a mixed bag of returns this past week. Mostly, team Green (TD Bank) was in the red, while there were more blue skies ahead for big Blue – Royal Bank of Canada. CIBC continues to be a surprise hit, while Scotiabank might be its own definition of mixed bag. Bank of Montreal impressed with their optimistic view of the future. Can we see the other side of loan shock or weakness in Canada? National Bank has been a darling for the last decade, but it disappointed with higher provisions for credit losses. We’re looking at the Canadian banks’ mixed bag of earnings on the Sunday Reads.
The S&P TSX bank index is up around 12 per cent since last quarter’s results, including a 19 per cent gain for Scotiabank and 17 per cent climb for CIBC. Declining interest rates, as the Bank of Canada has reduced its key rate by 1.25 percentage points since June to 3.75 per cent, have also been important. “The next lift in the Canadian banks’ valuations will likely come when consumer lending growth resumes, which should be as early as in the first half of 2025,” Jeffries analyst John Aiken offered.
Canadian banks already looking past risks
The bank index is up over 38% over the last year. We’re up 27% in 2024. The market is suggesting we are in for a soft landing with respect to the Canadian economy and Canadian mortgage market. Canadian mortgage holders have been saving like crazy and accelerating their mortgage payments. And with the softness in the Canadian economy (including recent unemployment numbers) most economists are calling for a 0.50% rate cut this Wednesday. That’s an additional band-aid for Canadians set to renew their mortgage. 50% of mortgages will reset in 2025 and 2026.
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Canadian banks have a long history of outperforming the market. Most periods look like this (or better) …
As I suggested here – investing in Canadian banks, the Canadian bank oligopolies are a proxy for the Canadian economy. It just happens to squeeze a little extra maple syrup out of the situation. I also put forth the notion that we should likely just buy them all. It’s impossible to predict the near term winners (though I will perpetually put forth the notion that RBC is the King of Canadian banking).
National Bank of Canada banking analyst Gabriel Dechaine said that among Canadian banks, Bank of Montreal and Royal Bank of Canada are the biggest winners from a Trump victory.
Own them all, or go even further
You can buy them all, or buy the index (ZEB.TO), or perhaps better yet own the Canadian financial index (XFN.TO) that includes insurers and few others. The insurers have been outperforming banks over the last few years.
I have to admit my concentration in RY, TD and BNS has hurt my performance. That’s company specific risk. That’s concentration risk on full display. Fortunately my wife owns more banks and the insurers.
It’s earnings time
I will let the wonderful graphics from EarningsTime paint the picture for the Canadian banks mixed bag of earnings.
TradingInTheZone offered an overview on National Bank.
Sector exposure by region or country
Here’s the sector exposure by region. U.S. reigns supreme on growth sectors.
A fantastic graphic from Charlie Belilo on what we’re owning by way of U.S. stocks – the earnings growth vs multiple expansion (paying more for your share of earnings).
The chart is telling us it’s not a good time to buy the U.S. stock market. But the U.S. appears to be the only growth game in town. U.S. exceptionalism (a theme on this blog from Day 1) is accelerating.
The modern economy is based on technological developments and innovation. In that department the U.S. is moving to a near monopoly in artificial intelligence.
Even Uber-bear David Rosenberg has thrown in the towel.
More signs of stress in the Canadian economy …
That rocked the Canadian Dollar …
But the bonds markets are there to help us pick up some of the slack and manage the risks …
And all are events that are easily managed by a balanced portfolio. XGRO was up 0.74% on Friday and the wonderful asset allocation ETF had another good week.
There is a lag effect, more cuts are on the way. Economists are now calling for another 0.5% cut at the next Bank of Canada meeting this week.
More Sunday Reads
At Dividend Hawk – the week in review for Hawk’s stocks.
At Findependence Hub – Real Life Investment Strategies #5: Retirement Decumulation Strategies courtesy of portfolio manager Steve Lawrie.
That post goes over sources of income and how one might withdraw funds with an optimized cash flow plan – when, and at what rate to fund retirement from various account types and revenue sources such as CPP and OAS.
Join us for Retirement Club
This will be one of the main topics of Retirement Club (a Cut The Crap Investing presentation 🙂 beginning in mid January. ‘Retirement done right’ is the main mission. Financial freedom and security allows you to design a rich and enjoyable life filled with purpose. It will be a series of monthly Zoom calls, a newsletter and a resource hub built over time. There is a modest annual fee. Send me a note (use the Contact Form) and I will send you the outline.
Also on the retirement front, at the Retirement Manifesto, Fritz offers ‘Why I write a love letter each year, and so should you’. That is a lovely idea, of course. But the topic may surprise you, and it’s a concern many readers have brought to me in recent months. What happens when the family’s portfolio manager (you) passes away. From Fritz …
By writing an annual Love Letter to my wife, we’re prepared.
I’ve invested countless hours managing our investments for the past 40 years. I’d hate to see a well-founded strategy coming undone due to errors that could be avoided by good communication.
In addition, my wife and I both have peace of mind knowing there’s a document that will help guide her through the process of transitioning to widowhood, should that scenario develop.
At Banker on Wheels, cycle through a nice mix of posts and podcasts of the week.
Including, the U.S. markets are swallowing the rest of the world. And one of my favourite topics/approaches gets some attention – improving low volatility strategies.
Buying the growth-oriented Nasdaq 100
Bob at Tawcan looks at the popular QQQ and the cheaper QQQM. You can save 0.05% by adding that ‘M’. It’s a good idea. But keep in mind that if you’re with Wealthsimple, you would lose big time on currency conversion fees. Premium and Generation level clients might be able to avoid those fees – but call to confirm your status, and any fees.
Ironically, I recently helped a friend/reader leave his BMO Nasdaq 100 mutual fund that had a fee of 1.26%. There are also Canadian Dollar versions of the Nasdaq 100 –
- ZNQ 0.39%
- XQQ 0.39% (currency hedged)
- HXQ 0.25%
- QQC 0.20%
The fee savings from mutual fund to ETF might equate to 35% or more over a 30 year period. Or, about a $1,000,000 vs $750.000 portfolio.
Ya, fees matter. If you’re in high fee mutual funds, call me. Well, use that Contact Form on this page instead.
The incredible rise of ETFs
Canadian ETF holdings recently topped half a trillion dollars.
It’s all over but for the crying for high fee mutual funds (and their salesforce) in Canada. Over the last three years, ETFs have seen net inflows of roughly $130-billion, while more than $90-billion has flowed out of mutual funds.
That said, the river that will be cried will flow for a few decades. So many Canadians are stuck in their old ways. And ironically, if is often old-way can’t teach an old Canadian new tricks who are stuck in high-fee crap. They are not interested, they will not use Google search to fund Cut The Crap Investing. But hey, if you want to help out a friend or family member, send them my way. I’m happy to help for karma sake. Friends don’t let friends pay high mutual fund fees.
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For November we received $51.44 in cash. You can select 3 categories for 2% cash back.
That cash went into my TFSA account to buy some bitcoin, ha.
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Hi
Please send me information on the Retirement Club.
Thx Al
Thanks so much, I have sent you an email.
Dale
Hi there. Would you please send me information on the retirement club? Much appreciated.
Thanks so much, I have sent you an email.
Dale
Could you please send me info on the retirement club? Thanks.