Sun Life Financial Inc (SLF.TO)

(A Top Pick Jan 31/13. Up 29.64%.) Bought this when people thought the North American life insurance companies were going out of business. This one was less exposed to variable annuities which were a problem. Has a really good asset management division. Now that interest rates have come back up some, the lifecos, including this one, have responded well. Outlook continues to be very good.

5.7% maturing 2019. This is a good quality credit and he would Hold.

Would the falling Cdn$ help their profits? Broadly speaking, this is the right theme. Canadian stocks massively underperformed global stocks last year, in some cases by as much as 20% in Cdn$ terms. He tends to think this won’t happen again this year and Canadian stocks should perform broadly in line with global stocks. As the loonie comes off, the profitability of a whole host of Canadian companies that get some of their income from outside of Canada will be enhanced. Prefers to play this in other ways.

Manulife (MFC-T) or Sun Life (SLF-T)? Doesn’t own either, but if he did, it would probably be Manulife. It’s a bit bigger and has a great track record. Becoming very active in China which he thinks will be a great market for them. This one is also in Asia working in India.

Well held by his private clients. They are diversified and very international. Does well in asset management. If market stays strong this one will do well. Shouldn’t go wrong.

Manulife (MFC-T) or Sun Life (SLF-T)? Low interest-rate environment that we had been in for the last 3-4 years has been terrible for insurance companies. We are now in an environment where everybody expects bond yields to go up, which can only be positive for life companies going forward and it is expected to see better earnings on their portfolios. Feels Manulife probably has more leverage. It has more international exposure and a little bit more scale.

Prefers MFC-T because of the growth in Asia and from the regular business.

More growth in Manufacturers Life (MFC-T) or Sun Life (SLF-T)? These are both global businesses with large exposure to different parts of Asia, in this case in India and other parts. Both are international companies and he likes them both. Still sees upside as well as dividend increases in both companies over the next 2-3 years.

This is a stock he would want to own going forward. Released a lot of their reserves and a lot of their guaranteed programs are coming back on side. Guarantees that they have had to keep for individual investors are now looking a lot better. Has a lot of momentum.

Has had a pretty good move this year and he finds the valuation is pretty full. Part of the gains have been because US interest rates have gone higher. Doesn’t see as much growth, particularly on the international side. He wouldn’t be adding to any holdings but would possibly be trimming some.

Lifecos have had a sort of a stealth year this year in that they are all up very, very nicely but haven’t garnered a whole lot of attention. The situation is set up for them pretty well. Good equity markets and at some point we are going to get an increase in interest rates. Also, life expectancy is in their favour. Still an attractive Buy.

Chart shows several different up trend lines. Currently a little above its general trend line. There is no reason to sell this. $33 is where you will find support. To him, this is the best of the insurance group.

Lifecos had a sort of spurt of interest over the summer, when it appeared that interest rates were going to finally go up. They need interest rates to go up to make a serious amount of money again. It looks like interest rates will be staying low for longer than people had hoped. They are also faced with changing demographics. It is bad if you have a lot of annuities because people are living for ever.

If you don’t own, he would go with a bank instead, which are good investments right now. Most of the banks have gone sideways for a good part of the year so he feels there is good upside potential. Yield would be similar.

What factors should we focus on in comparing this with the other lifecos? Also, what should we focus on when comparing with other financial stocks? Lifecos are quite different than other financials. Also, in the insurance industry, it is important to know if a company is in the life side or the casualty side. He stays clear of the casualty side. This is an area that can get squeezed on margins, particularly when bond market yields are so low. Lifecos are legislated to put a portion of their investment portfolios into fixed incomes, and when these are running 2%-3%, it’s a pretty tough market to maintain margins. He owns Great West Life (GWO-T) through Power Financial (PWF-T). Not that enthused about Sun Life.