Insurance, market movements, and the RBA rate call
We are slightly UW the banks (2%) and very overweight the insurance companies (~12%).
And, whilst they are hardly the best stocks on the market, today, we’ll take it.
Insurance companies benefit from a higher return to float, thanks to higher interest rates, are looking good against an RBA intent to tighten further still.
To a lesser extent, the banks are holding up, relative to benchmark, which is acceptable. We’d prefer them to outperform of course, but still.
Whilst the market sagged a touch, post the RBA cash rate announcement, movements overall are pretty modest, leaving us with a “mostly priced in” take, e.g. few surprises to the market.
Also in a move sure to surprise no-one, based on historical spreads (either the cash rate to mortgages, or 3yr treasury bonds) the array of mortgage rates shown below are set to move materially up. 5 handles not at all a surprise…
…but 6 or more likely to be a material shock to those who took out loans not so long ago.
Anyway, so what to do?
Well, for us it is to sit OW in stocks and sectors that we think will benefit (insurance companies), that should benefit (banks) and UW those where it won’t benefit (consumer discretionary, travel, leisure) and might hurt (information tech, which is long duration).
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