CIO: this sub-sector within financials is my top rate-hike play

Image for Chubb stock

Financials tend to outperform when rates go up; that’s the consensus. But there’s a sub-sector in this space that’s particularly well-positioned to benefit from the rate hikes, says Pivotal Advisors’ chief investment officer.

McGhee is bullish on insurance companies

According to Tiffany McGhee, insurance companies are likely to see a significant boost in profit margins once the central bank moves to raise rates. On CNBC’s “Worldwide Exchange”, she said:

What insurance companies do is that they take their customers’ premiums, and they invest those premiums in low-risk assets. So, rising rates translates into higher interest income for them, allowing these companies to increase their profit margins.

McGhee attributes the ongoing market volatility to “uncertainty” and not the rate hikes per se. She expects the volatility to subside once the U.S. Fed paints a clearer picture around how many does it plans on raising rates this year and how high could it go?

McGhee’s top pick in insurance companies

In the insurance companies, one name that pops out to the Pivotal Advisors’ CIO is the Zurich-headquartered Chubb Ltd (NYSE: CB) – up 7.0% for the year. McGhee added:

It’s the largest publicly traded property and casualty insurer in the world. It has consistent revenue growth globally, high credit ratings across all agencies, strong operating cash flow, they’ve increased their dividend consecutively for 28 years currently at 1.6%, higher than the industry average. So, they’re in pretty good shape.

U.S. inflation continues to stick around a record high in about four decades, making experts call for as many as seven rates hikes in 2022. As per Goldman Sachs, the S&P 500 index could slide another 12% if inflation continues to run hotter-than-expected.

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Source: https://invezz.com/news/2022/02/16/cio-this-sub-sector-within-financials-is-my-top-rate-hike-play/