The barrage of U.S. regional bank failures really rattled markets last month. Though markets have somewhat calmed, pressure on the regionals has continued to act as some sort of thorn in the side of the financials.
In this piece, we’ll look at the insurance basket, which has also faced increased pressure in recent quarters amid interest rate hikes. Even as bank failures and other issues cause increased volatility across the financial sector, I’d argue that it’s the top insurers that deserve more of a break.
At the end of the day, they don’t need to worry about a run by depositors. Insurers may be pressured if all their claims are exercised at any given timespan. However, such a scenario is very unlikely, especially for the insurers that properly diversify. In a way, the insurers can provide more in the way of certainty at a time when depositor confidence stands to be challenged by industry- and macro-related headwinds.
I think that Canada’s top insurers are every bit as investable as the Big Six banks. You may not hear from the insurers nearly as much as the big banks when it comes to headlines. However, that does not insurers aren’t compelling value plays for investors willing to put in the homework.
Manulife stock: A top insurance pick
Manulife Financial (TSX:MFC) is an insurance top dog, with a $36 billion market cap. Indeed, the life insurer and wealth management play may not be as large as the big bank behemoths. That said, I think Manulife is a very compelling way to play the long-term move into the Asian region. As you may know, it’s good to diversify investments across industries and asset classes. Still, many Canadian investors may be neglecting the geographic aspect of diversification.
As Canadians, much of our portfolios may be overweight in Canadian and U.S. securities. There’s a whole different world out there that can help investors accomplish their longer-term goals. The Asian region, I believe, is a very compelling region that can help unlock next-level, risk-adjusted growth.
Heck, even Warren Buffett has been investing in Asia, with his recent bets on Japanese trading companies. By venturing into such markets, at least with a small portion of your portfolio, you can discover new value opportunities while enhancing your portfolio’s geographic diversification.
As great as Manulife’s long-term growth profile is, it may take some time for the stock to find its footing as we move into a recession.
IA Financial (TSX:IAG) is more of a domestic insurer that’s also got skin in the game of wealth management. While IA’s growth prospects may not be as exciting as Manulife, I think the stock is a great value with some of the best risk managers in Canada. At writing, shares go for 11.5 times trailing price to earnings, with a 3.1% dividend yield. IA’s yield is far smaller than Manulife’s (5.6% at writing). Still, I think IA is more of the type of insurer you’d want to consider as economic headwinds linger.
The stock’s longer-term trend is higher. And though the stock can still tank in a broader market crash, it’s evident that the firm can recover with time. Insurance can be a tricky business. And as we wander into a tough year for the Canadian economy, I’d prefer investing in a firm that has a history of being able to get up (quicky) after enduring a fall over the “growthier” firm.
IA and Manulife are both stellar insurance plays to own over the long haul. I’d not be against holding both. However, if I had to choose one, it’d have to be IA. I think it’s better equipped to roll with the punches the economy will throw its way. As for Manulife, I’d look to watch the name closely with the intention of nibbling away at dips.