It seems like a foregone conclusion that rates will rise at some point this year. The economy is bouncing back, the jobs situation is rapidly approaching full employment and inflation is ticking close to the 2% target.
This means that it may be time for investors to start considering plays that are poised to benefit from a rising rate environment. Financials are a top pick in this regard and they are likely going to be top performers if rates do rise.
Why financials?
For financial companies, a wider spread between short term and longer term rates can lead to bigger profits. And when matching liabilities to assets, higher rates tend to bring in more income which is obviously good news for companies in the space. Take for example the insurance sector.
This space will match up liabilities (payouts) and assets (investments) and it can be a big fan of bond investing. And as rates rise for the benchmark rate, so do they for other types of debt, increasing the profit potential for insurance companies. After all, the payouts don’t really change as the interest rates rise or fall, but the income from the invested assets certainly can.
Due to this trend and the prospect of higher rates, the insurance-life segment of the investing world currently has a promising Zacks Industry Rank just outside the top 40%. But if you are looking for the best-of-the-best in this segment, definitely take a closer look at Sun Life Financial (SLFÂ -Â Analyst Report) as this could be a stock to outperform in this well-positioned corner of the financial world.
SLF in Focus
Sun Life is a Canadian-based life insurance company that basically has five major divisions; Canada, Asia, U.S., UK, and then its wealth management group. The company derives the bulk of its net income from the Canada and wealth divisions combined, though Asia and the U.S. contribute double digit levels as well.
The company has seen solid results in terms of sales for both its insurance and wealth management divisions, and it maintains double digit readings in terms of ROE. The company has also recently repurchased three million common shares and hiked dividends too, pushing the yield north of 3.6% in the process.
