Fidelity Australia (Fidelity) is looking to insurance companies to deliver gains.
Insurance has become a preferred area, portfolio managers said at a recent roundtable, as reported by Money Management.
QBE shares have seen a 19.5% increase since the onset on 2023, while Suncorp’s have risen 16% over the same period, according to the report.
“We think the insurance sector is one of the beneficiaries of the current inflationary environment as inflation means insurers are able to increase their premiums,” said Casey McLean, portfolio manager of the Australian Opportunities Fund, as reported by Money Management.
“We are also experiencing a high level of natural disasters, both in Australia and in markets like the US, which pushed up claims inflation, reinsurance rates and, ultimately, insurance premiums,” McLean said. “Further, a higher interest rates environment means insurers are able to earn good returns on the investment of premiums.
“Overall, the outlook for their earnings looks pretty strong over the medium term.”
Fidelity is favouring insurance firms at the expense of the big four banks, Money Management reported.
“Since the RBA paused hiking rates in July, markets' expectations for two 25 bps increases in the cash rates have eased slightly to one 25 bps increase, following a weaker monthly inflation figure,” Zara Lyons, a portfolio manager on the Australian Equities Fund. “This, combined with a slight softening in competitive dynamics across both mortgages and deposits, has led to a share price rally in banks, which have outperformed the broader market over the last few months.
“However, we think this rally might be short-lived if the economy deteriorates further from here.”
