It’s now been close to three weeks since Donald Trump defeated Hillary Clinton, and the media is still abuzz.
Now everybody is talking about what exactly the President Elect will do. Will he build the wall? Was he really serious about leaving NAFTA and putting tariffs on foreign-made goods? And just how big will his stimulus plan be, anyway?
That last point is very important, especially for Canada’s financial stocks.
If Trump borrows extensively to fund infrastructure projects, this will inevitably push up interest rates -- or so goes the prevailing wisdom. Higher interest rates are bad for most companies, especially ones that do a lot of borrowing. But they’re very good for banks on both sides of the border.
There’s an easy way for investors to play this trend. They can just buy the iShares S&P TSX Capped Financials Index Fund (TSX:XFN).
The ETF has 27 different holdings, but is dominated by Canada’s five largest banks. Together, they account for 63.8% of assets. Manulife Financial, Canada’s largest life insurer, is another 6.8% of assets. The rest of the companies comprising the ETF are relatively minor.
Financial companies pay generous dividends, and so does this ETF, even after accounting for the 0.63% management fee. Shares pay a trailing yield of 2.9%.
There’s plenty of liquidity, too. This ETF trades more than 100,000 shares each day on average, and has assets of more than $1 billion.
