Education Series: Single-Stock ETPs

Financials, Gold or Crypto? A Classic is Rising

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Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

In a recent article that discussed the components of the S&P 500, we had stated that ETFs based on Oil & Gas as well as Financials had been showing a subtle increase in volumes. While the value proposition and outlook for the energy sector was outlined in an earlier article, the outlook for financials merits a more detailed analysis.

The Year So far

The outlook for the banking industry in 2022 had largely been upbeat, given how sector performance is strongly correlated with events such as the reserve releases and improving loan growth, better investment manager performance, rising premiums and insurance, property price indexes in real estate in recent times. However, U.S. inflation rates hitting 40-year highs present a scenario that historically witnesses gold prices rising if efforts to contain inflation don’t have significant effect. Over the months since the new year, there has been little sign of abatement in price increases for household goods, food and energy even before Russia’s “special military operation” in Ukraine.

Meanwhile, crypto investments, while increasing in volume, hasn’t seen nearly the same immunity to “fiat” market events that some popular crypto proponents had long asserted in the past. For example, while Bitcoin ushered in the new year with a 62.3% increase in value on a year-on-year basis, it rapidly shed 19% over the course of January. While prices did improve over the next month, March began with the benchmark cryptocurrency down nearly 7% relative to the new year and April began with it being 3% down.

Gold, financial stocks and cryptocurrencies can broadly be considered as the equivalent “money” instruments: in some way or form, they either “represent” wealth or “process” wealth. For gold, lets consider the VanEck Vectors Gold Miners ETF (GDX) while the financial sector is represented by the the Financial Select Sector SPDR ETF (XLF). To zero in on the banking sector specifically, lets also consider the stocks for HSBC, Barclays, JPMorgan, Citigroup and Goldman Sachs.

ETF Comparison

Just as with the ETF analysis executed in the article on energy instruments, ratios are calculated in the constituent average as well as weighted average format over a series of one-year windows – plus two additional points in the current year – in order to evaluate the two ETFs.

Going on analysis on the basis of weighted-average trends, the following can be observed:

  • As a whole, XLF is relatively less overvalued than GDX.

  • GDX has high Price to Earnings (PE) Ratios in mid-2019 which had pared down to 3-year lows of around 20 before rising up to nearly 29 in the present. In contrast, XLF’s PE Ratio – after a modest high in mid-2021 – are inching downwards in the present.

  • GDX’s Price to Sales (PS) Ratio – barring that seen in January 2022 – has been in a “steady state” for at least 3 years. This is the case with XLF as well.

An interesting observation can be seen in the data in January 2022: GDX’s average Price to Sales Ratio is extremely high. This is due to ETF constituent Capricorn Metals Ltd, which had a PS Ratio of over 11,210 and a Price to Book (PB) Ratio of over 8.9. The weighted average method made the ETF’s PS Ratio a relatively reasonable value of 40.57. While, in general, gold miners’ forward-looking outlook over their business lends a slightly greater edge in its valuation, it can be seen in general that both ETFs are mostly comprised of stable and reasonably valued companies.

Now, lets consider the banks.

Global Banks: A Little More to The Picture

Now, lets consider global banks’ performance with the very same ratios and timeframes.

The following patterns are observed:

  • All the banks have seen a drop-off in PE Ratios, with Barclays being the most affected.

  • Only Goldman Sachs shows a net increase in PS Ratio while Citigroup shows the biggest decrease.

  • Only JPMorgan and Goldman Sachs show a net increase in PB Ratio while Barclays shows the biggest decrease.

Also, in terms of short interest recorded in U.S.-based instruments (i.e. the ADRs of Barclays and HSBC in this case), Barclays and HSBC have had a substantial increase in short interest, along with Citigroup. However, it is evident that short interest in JPMorgan and Goldman Sachs have also registered a significant uptick in the year till date.

It’s not immediately evident how much the current economic outlook affects the banks’ investment banking and trading divisions. While SPACs face increasing regulatory pressure and IPOs are estimated to witness a slowdown, virtually every major U.S. bank (and likely other global banks) anticipates an increase in trading revenue. On the other hand, debt-related activities forms a major part of most banks’ revenue streams. While this data is not available on a daily basis, trends seen until the end of last year highlight a few key developments.

It can be noticed that while Goldman Sachs has registered a net increase in “loans relative to deposits” as well as “loans relative to assets”, it has also witnessed an increase in non-performing loans that is second to HSBC in terms of rate of increase. Outside of Goldman Sachs, all other banks here have had decreasing loans relative to deposits as well as loans relative to assets. These statistics seem to be indicative of a larger issue: it’s quite likely that rising inflation is affecting the debt-repayment abilities of many businesses and wage-earners tin the U.S.

Price Trends and Trajectories

Across the time horizon considered, the trends in instrument performance – in comparison to gold futures and Bitcoin – show some distinctive characteristics.

In effect;

  1. Both gold miners and gold futures have seen a substantial increase in the year till date (YTD). However, the gold miners show a little more volatility relative to gold. This is likely a function of these stocks being relatively overvalued; overvaluation typically imparts more a reactionary characteristic to market events and news.

  2. Bitcoin’s performance – as indeed that of every major cryptocurrency – shown a strong correlation with “fiat” market events during the downturn seen over the past several months. This effectively implies that, at least in the present paradigm, cryptocurrencies cannot become an effective replacement for the “storehouse of value” status that a classical element like gold has.

  3. While virtually every bank has shown a downturn in the YTD, HSBC is an outlier in that it hasn’t. This is suggestive of the idea that investors don’t think of any possible recessionary behaviour being a significant impediment in the Eastern Hemisphere – an important area of focus for HSBC.

With regard to XLF’s constituents outside of banks, it bears noting that companies with significant connections to market trading such as MSCI, CME Group, MarketAxess, Moody’s and S&P Global have both high PS and PE Ratios relative to those seen in banks. While their relative weights are quite low, it represents a welcome source of diversification. Whether this pans out over the year to come or whether there will be a “ratio cool-off” remains to be seen.

However, given the trajectories, practically any investor with an exposure to the “business of money” but without an exposure in gold-related assets would be remiss. The trajectories seen in light of the current economic scenario highlights precisely how gold-related assets play a crucial role in stabilizing portfolio value.

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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Sandeep Rao


Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

Violeta Todorova

Senior Research

Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.

Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.

Julian Manoilov

Senior Analyst

Julian joined Leverage Shares in 2018 as part of the company’s premier expansion in Eastern Europe. He is responsible for web content and raising brand awareness.

Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.

For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.

Oktay Kavrak


Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.

He joined LS from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.

Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.

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