This Sector Will Do Well as Rates Rise

Andy Snyder|February 21, 2022

We’re adding another sector to our buy list.

If you’re a conservative investor… if you, too, fear a recession is looming… or if you’re simply interested in beating the market without risking the farm (or the bacon in the freezer!)… pay attention.

For more than a year, we’ve been touting the merits of the nation’s banking sector.

Rising rates and soaring consumer debt have treated banks well.

Bank of America is up more than 30% over the last year.

Wells Fargo is up more than 50%.

And some smaller, regional banks are up even more… despite the nasty start to the year.

It was a good call – an easy call. We hope you followed it.

Now we’re adding another key sector to our list.

Easy Math… Easy Money

Insurance stocks aren’t the stuff of memes or cocktail parties, but give them enough rein and they’ll drive you to riches.

With rates at absurdly low levels, the sector has hardly been worth our time over the last few years. The theory behind our popular Modern Asset Portfolio bids us to trek much further out on the risk spectrum when rates are at or below zero.

But things are changing. Rates are climbing. And our strategy must adjust.

Insurance stocks are gaining some luster.

The logic is simple…

Oh, sure, insurance companies offer a product… insurance. But they’re really just investors – really big and often really good investors.

But they can’t speculate like the average Joe can. They’ve got to keep ample cash on hand to pay the bills when a squirrel chews through a wire and burns a house down… or when a hurricane washes away a town.

They’re pretty conservative investors.

Again, over the last few years, that gave us very few reasons to look at them. But things are changing.

Here in the States, the average insurer has 52% of its money in corporate bonds, 14% in sovereign debt and just 13% of its portfolio in stocks. The rest is spread across cash, private loans, real estate and short-term assets.

That means insurers are fixed-income plays.

They get more for their cash when rates are rising.

Look at the action from The Travelers Companies (TRV) so far this year…

The big-name insurer is flat-out smoking the market… plus it pays a 2% dividend.

Allstate, Chubb, The Hartford… they’re all beating the market’s dour performance in recent weeks. It’s the first time in a long time we can say that.

But as long as inflation is rising and the Fed is chasing it with surging rates, the trend will continue.

Again, this isn’t a get-rich-tomorrow kind of trade. But folks who buy insurers now and hold them over the next six months – while the Fed is at its most hawkish – will do well.

Just pray the next media panic doesn’t involve an invasion of wire-loving squirrels.