Manulife Financial (MFC.TO)

He goes to where the puck is going. We were at 300 year lows in interest rates. We had uncertain equity markets. These are challenges for insurance companies. They had to fix their balance sheet, grew outside of Canada and wealth management is now a part of their business. We have improving capital markets and slowly rising interest rates. These guys are the biggest beneficiaries of rising interest rates. They are likely to grow their earnings double digits for the next few years. This is a play on global wealth management and on the US. It is breaking out to new highs.

One of the better places to be if rates are going to go up. Doesn’t own any of the insurers or banks right now. If you are going into this general area, he would prefer the life insurers rather than the banks at this time.

(A Top Pick April 23/14. Up 15.65%.) Still likes this. They have done a full recovery. Growing their earnings at a 10%+ rate. Healthy dividend increases along the way. Have done great acquisitions in Asia and the US.

Floating rate senior loan. Positioned as an alternative to get yield in your portfolio and minimize interest rate sensitivity. It would fall a bit if interest rates fell. You can hold this if you are a passive investor.

This has been doing amazingly well in the last little while. It has recently re-established an upward trend and broke through a new high. Seasonality tends to be very similar to the financial service sector and has reached the end of it seasonal strength. Watch for signs of technical weakness going forward, which will be the time to take some profits.

Likes the lifecos better than the banks in Canada, but this is not one of the ones he is recommending. Prefers Sun Life (SLF-T) and Great West Life (GWO-T). This company is not bad, but just not as good as the others. Back in 2007-2009, they were over leveraged to stocks and bonds, and now they have under leveraged themselves, at a time when you might want to be more leveraged.

Have done a pretty good restructuring over the past couple of years. A rising interest rate is going to benefit the life insurance companies. They reduced their exposure to the stock market volatility pretty dramatically. More importantly, their core earnings growth is coming through. Have growth in Asia and strong growth in wealth management. Trading at a discount to what insurance companies typically have traded at, and a big discount to what the banks are trading at. Dividend yield of 2.96%.

This is starting to track a little bit better than Sun Life (SLF-T), which he owns. As interest rates start to edge upwards, this should do well. As equity markets do well, insurers also do well. The dividend is stable and will continue to move forward.

This is really about interest rates. As interest rates start moving up and we get a better economic picture of what the future looks like, then he thinks life insurance companies get a lift. His model price is $30, a 31% upside.

Insurance companies are looking better and better. Rising interest rates are a positive, but not as much as they would have been if it was not for 2008. He is potentially looking at another position in the future.

What is holding the company back is the structure of interest rates. At these kinds of levels, when you’re trying to write a long-term retirement policy and all you can get is 2%, it is tough to make any money. This is the kind of company that will do very well if and when interest rates rise.

This would be a reasonable entry point. If you are of the view, which he is, that things are getting better in the economy, one of the things that do well in a rising economy is financials. In lifecos, your liabilities are discounted at a higher rate. They also do well in the asset management side of the business. Growth gives them opportunities for acquisition as well as expansion of their businesses. This is very big in Asia which continues to be a bright spot for them. Good name.

Recently switched his holdings into Sun Life (SLF-T). Feels both of these companies are very well positioned and will be benefiting from higher interest rates.

All lifecos benefit from rising interest rates. Thinks this will do better. Had a terrific move in 2013 because of rates lifting off their lows. When you get the US long bond in the 2.5%-3% range, you will see a lift off in the life insurers.

They have done so much to de-risk their balance sheet and to change the structure of the products that they sell, to be more profitable and less capital markets related. Have built a very strong balance sheet and one of the best capital bases in the industry. Have undertaken some tremendous growth initiatives in Asia as well as the US. Recently made a distribution deal in Asia. Have become very long term in focus and the ROE is improving, which he expects is going to be over 10% going forward. Yield of 2.8%.