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).

Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.

This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.

Please note that past performance is not a reliable indicator of future performance.

General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.

Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.