Strategy Update: A Gradual Move into U.S. Banks

Genevieve Signoret

(Hay una versión en español de este artículo aquí.)

We’re slowly opening an equity overweight position in U.S. banks.

We’re focusing on regional banks for the U.S. tax residents among our clients and banks overall for those who file in Mexico. We differentiate based on tax efficiency criteria.

Share prices in U.S. banks are currently attractive, with price-earnings ratios of 14–15. Moreover, our models are calling their upward trend sustainable with strong conviction.

Bank stock index ETFs these days are decent diversifiers in that, when paired with ETFs tracking the whole-world or all-U.S. markets, their correlation coefficients are no higher than 0.63. Coefficients this low compare favorably with those pertaining to ETFs that track U.S. indices focused on growth, value, small-cap, mid-cap, and large-cap stocks, all of which measure 0.90 or more.

Regional banks referred to here are no mom-and-pop stores. After all, they’re listed. PNC and Citizens, for example, are hardly obscure brands.

Of course, the broad U.S. bank ETF we’re buying for Mexico tax residents is dominated by the giants: Citigroup, Bank of America, Wells Fargo, and JPMorgan are its top holdings. But it does include regional banks as well.

We’ve been trading more actively than usual in recent months, so, to hold down (taxable) short-term capital gains and save on trading fees, we’ve decided to open this new equity overweight position chiefly with new capital.

Bank share prices have stumbled some in recent weeks, so we await entry points patiently.