Prudential Financial Inc (PRU)

BAC vs. PRUDENTIAL If both benefit from wider rates, the spreads will widen for U.S. banks, which have been
pulling back. BAC has A 10% market share in the U.S. which is as big as the entire Canadian banking system. BAC has lot of exposure to the plain mortgage side where spreads should expand. Be patient and you'll see earnings and dividends. U.S. lifecos should benefit, too, but so will Canadian ones like MFC-T (which is a good entry point now). He prefers American banks over their lifecos.

BAC-N vs. PRU-N. He leans more toward the banks. You are taking on yield curve and interest rate risk with the banks, however. BAC-N is his preference.

Prudential Financial (PRU-N) or the banks? He would own both. You need to diversify within your financial sector. The banking sector grows differently than life insurance. Life insurance is a bit more dependent on where interest rates are heading, and he thinks they are going to continue to creep higher. This company has a very strong balance sheet and a tremendous amount of capital in their balance sheet.

MetLife, Prudential or the American banks? He would give a bit of a nod towards the banks. As a general proposition, there are more ways the banks can boost earnings. The purchase of insurance is very much out of favour. Regarding MetLife versus Prudential, he would give a slight nod to this one as they have been doing some cost cutting which will help their bottom line.

This closed at $110.27, and he has a model price of $125.66, a 14% upside. He is positive for the whole US financial sector. This is one you could buy for the long-term. Dividend yield of 2.75%.

The lifecos are big beneficiaries of rising rates. There is going to be improving loan growth in US wealth management.

MetLife (MET-N) or Prudential Life (PRU-N)? When you are building a diversified portfolio, within financials, if you own a bank, only 1 or 2 lifecos is just as good. He can’t really choose between these 2, and in fact would own both of them. Both are going to move in similar directions, and both will benefit from rising interest rates.

Prudential (PRU-N), Metropolitan Life (MET-N) or a US bank? He likes financials for the long haul. The only group that has not fully recovered from the 2008 downturn. However, there has been a tremendous run up since the election on the hopes for higher interest rates because of stronger growth from some of the Trump policies and less regulations. He likes them both. They are both trading close to BV. However, insurance is becoming more and more of a commodity business, so he thinks he would give a little edge to MetLife for being bigger. Currently he likes the life insurers because the banks have run up so much.

MET-N vs. PRU-N. They will get a nice tailwind from a steeper rate curve. He prefers MS-N or GS-N to these two.

Currently there has been a ratcheting higher of expectations for a rate increase, which would be positive for financials. People think a higher rate will push the yield curve on the short end higher, which should reflect higher inflation expectations in the out years, lifting the long end of the curve. There is a feeling that everyone is currently dramatically underweight on financials. There is probably some short term life to financials. Doesn’t feel rates are going to go high quickly. He holds a neutral to bearish views on financials.

When you buy a life insurance product, they have a long tail risk i.e. most of the people are going to live a long time. The company has to invest your premiums so that eventually they have assets to pay off the policy. They used to buy long bonds, which yielded 4%-8%, but now yield 2%. Because of this, insurance companies have been shopping for other long lived assets like apartment buildings, shopping centres and infrastructure assets. There is not as much liquid in them and they are harder to trade. Lifecos have had a hard time making up for those low interest rates. Because of this, he would prefer banks and casualty insurers. Sees this as a dead sector for the next couple of years.

(US banks or lifecos?) He would be cautious with both US lifecos and banks. Both have a lot of pitfalls. This one is certainly well run and has a global footprint, but it is just tough on their balance sheet right now with where yields are.

(A Top Pick June 9/14. Up 1.26%.) Still adding to his holdings as he is very confident that this will go up over time. This is a good example of a financial company in the US that is benefiting from nice secular tailwinds. A good, long term investment.

(Top Pick Jun 9/14, Down 1.32%) He was early. It trades at a reasonable valuation and you should see a better return of capital to shareholders over the next year or two. The valuation is attractive. Last quarter they reported a favourable capital position, which was held against them until now. More and more big corporations are off loading their pensions to companies like this one.

Insurers make their money in 2 ways. Basically selling insurance and hoping that losses are less than what they got on the premiums, but also make money investing the premiums while waiting for the loss experience. When interest rates are high, it is easy for insurance companies to buy very safe bonds, invest those unearned premiums and rake in the spread. However, when they are low, it is tough for them.