Sun Life Financial Inc (SLF.TO)

Financials are a theme we are going to be focused on for the next number of years. Insurance, banking and investment dealers all do well when long-term rates are rising. We turned a long-term corner on interest rates at the beginning of last year, and reversed a 30-year trend to lower rates. This is not going to be a straight line. You own this because you like their asset management and wealth management businesses. In the last couple of months, long term rates have pulled back a little, so the whole insurance sector has been under some pressure. He prefers Manulife (MFC-T) from a technical perspective, as well as some US companies. However, you should do well with the whole group.

This has had some struggles lately, mainly with its asset management division. Institutional money and redemptions have been fairly high for several quarters. All in all, it has been a pretty bright light for the company, which is sort of a surprise. Eventually it will get back on track, but it needs that catalyst to move higher.

This has run up on expectation of higher interest rates, but pulled back and is moving sideways. The risk is that interest rates don’t go up as much as people are expecting. Not an expensive stock, and you can own it if you have a 3-5 year time frame.

This is a good Buy at these levels. You could buy some shares, continue to hold it and collect the dividend, and on any weakness you could re-buy. Interest rates are expected to go up twice more in the US this year, which would generally be positive for insurance companies. He prefers Manulife (MFC-T).

As a sector, he likes the insurers. As interest rates move higher, equity markets rebound and the economy generally rebounds, insurers make a lot of sense in a portfolio. He has just bought this on the back of this recent downturn. Trading just above the 200-day moving average and it pays a nice dividend of 3.5%. Expected to grow their dividend by over 10% a year, which is important in a rising interest rate environment.

Life insurers, by virtue of how their balance sheets are set up, own a lot of bonds. A rising rate environment is good for them because as bonds mature they can be reinvested to generate higher coupon increments, which helps profitability. He prefers Manulife (MFC-T). Lifecos had a very strong rally into the 4^th quarter, and then they faded. The pullback probably makes these buyable.

He generally likes the insurers as they benefit from rising interest rates. He prefers MFC-T, however as it is a little cheaper. You can own either of them.

A healthy dividend of 3.4%. You can expect it to grow over time. It is not a company she is terribly excited about. She does not see a whole lot of growth ahead of it.

He is a big fan of lifecos. He owns this and POW-T as well as MET-N in the US. He likes them because he sees interest rates going up. It has little to do with what the Fed will do. Their profitability comes from bonds. They have gotten much bigger in the money management business.

He likes the insurance companies in this environment. Life insurance companies tend to do particularly well in any sort of rising interest rate environment. This has significant operations, not only in Canada, but also in the US, UK and Asia. Very well positioned to increase their ROE over the next couple of years. They have a target of 12%-14% ROE, which he believes they’ll be able to achieve. Dividend yield of 3.4%. (Analysts’ price target is $54.)

With 40% of its revenues coming from the US, this will benefit from proposed deregulations and tax reforms. Rising interest rates will help this. Lifecos will also benefit from aging demographics. Dividend yield of 3.39%, which he estimates to grow by about 10% a year for the next few years. Trading at 12X forward PE, which is pretty cheap. (Analysts’ price target is $54.)

Manulife (MFC-T) or Sun Life (SLF-T)? He has a long-term bias that favours Sun Life. It has just come back recently. Anywhere under $50, and you can accumulate the stock.

He owns this for several reasons. They have the US asset management business, and the US markets have been doing well, so that bodes well. Extraordinarily well managed. In terms of product offerings, they are better than some of their competitors. Profits have been up over the past year. Reasonable yield. (See Top Picks.)

SLF-T vs. MFC-T. SLF-T has done well, and then pulled back recently. He would prefer MFC-T. The life insurance companies would be a slight preference over the banks.

Doesn’t own any insurers. However, long term, the Canadian insurers have been good businesses and have done quite well. Trying to figure out earnings, etc. is very difficult. A lot of these big financial institutions are big black boxes, and you don’t really know what is inside. In financial investments, you are probably better off with US financials.