(Bloomberg) – Exchanges trading funds investing in Canadian banks posted strong inflows last month as lenders reported quarterly results which eased concerns about future earnings.
Financial ETFs saw net inflows of C $ 123 million ($ 90.9 million) in May, the second largest material thereafter, according to the National Bank of Canada. That puts the banking sector in the top position for net inflows in 2020 of around $ 452 million, supporting one of the most beleaguered stock market sectors.
Investors turned positive in Canada’s six largest banks after they reassured profitability and took a measured approach to building reserves to prepare for the fall of Covid-19.
Read more: Major Canadian banks set aside $ 7.9 billion for the worst loans
A total of C $ 726 million was traded in notional value last week at 10 Canadian ETFs focused on banks, representing 5.7% of the value traded at six major banks last week, according to the TD Securities report.
Some banks seem to indicate that the worse is behind them, while others are more conservative and show moderate provisions for loan losses in the coming quarters, said analysts led by Andres Rincon, chief ETF strategist at TD Securities. “It is clear from income that capital and dividends do not risk the top six, which is seen as positive,” they said.
Strong volumes were led by the BMO Equal Weight Banks Index ETF, iShares S & P / TSX Capped Financials ETF Index, and Canadian Bank Covered Call ETFs – which combined traded an average of C $ 143 million a day last week or C $ 716 million throughout this week, said TD Securities.
Many of these ETFs traded notional value last week at a multiple of what they usually trade when compared to the previous earnings week or the average daily value traded. Last week’s daily notional value traded is three times the daily average for the past month.
The S & P / TSX Commercial banks index posted the best week in more than a month last week after banks completed earnings reports, up 7.7% while the S & P / TSX Composite index rose 1.9%. With central bank interest rate cuts keeping net interest margins low, the index is still down around 12% this year, one of the worst performing sectors on the benchmark.
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