Topic: How To Invest

Q: Pat, I recently heard about Hamilton Enhanced Canadian Bank ETF (HCAL-TSX). Do you think this is a good way to invest in all the banks rather than try to find the best one(s) to buy individually?

Article Excerpt

A: Hamilton Enhanced Canadian Bank ETF, $28.52, symbol HCAL on Toronto, (Units outstanding: 13.5 million; Market cap: $385.0 million;, aims to track the Solactive Canadian Bank Mean Reversion Index. This index invests in the biggest six Canadian banks—TD, Bank of Montreal, Royal Bank, CIBC, Bank of Nova Scotia and National Bank. The ETF’s MER is 0.45%. Looking at the mean reversion strategy: Mean reversion strategies assume big moves will eventually reverse, at least in part. That’s in contrast to momentum strategies, which assume big moves will continue in the same direction for lengthy periods. In mathematical terms, the financial concept of mean reversion is better known as “regression to the mean,” which refers to the likelihood of a deviated dataset to revert to the mean. In other words, you might flip a coin ten times and all ten flips result in heads. But if you were to do 5,000 more coin flips, it would be extremely likely for the rate of heads occurrences to…