The bear market took a huge toll on the insurance industry, but it appears that better days might be ahead, sending stocks and exchange traded funds (ETFs) moving in a positive direction. Billions in writedowns in the industry have tarnished its reputation and led to the need for billions in bailout money for some of its largest players.
These groups have historically been known to lead market recoveries, but then again, this isn’t a typical market. Last Friday was a promising day for the Hartford Investment Group (HIG), Travelers (TRV), Chubb Corp (CB), PartnerRe Ltd. (PRE), and SPDR KBW Insurance ETF (KIE), which have all gained tremendous ground from its bottomed-out values seen in October, states Michael Kahn at Barron’s. KIE is down 50.5% year-to-date.
Kahn also suggests that the price of KIE made a lower low in November, but indicators as the relative strength index made a higher low suggesting waning downside momentum and a turnaround. Another good sign is that the ETF withheld short-term resistance when the market dipped 8%, indicating that demand is outpacing supply. Lastly, the ETF is in an elite group of funds in that it is edging close to its 50-day moving average, a strategy which we use to determine whether to consider an index or stock in this market recovery.
This is a vast improvement when compared to the troubles that the industry faced earlier on the year, forcing the Federal Reserve to bail out the industry’s largest player, American International Group (AIG). AIG isn’t done yet, either: they face another $10 billion in losses, report Serena NG, Carrick Mollenkamp and Michael Siconolfi for the Wall Street Journal.
When analyzing the sector, it is important to be mindful that it is very broad and not all groups within it are strong and making a comeback. Some other ETFs to consider are:
iShares Dow Jones US Insurance (IAK): down 55.2% year-to-date
PowerShares Insurance Portfolio (PIC): down 22.2% year-to-date
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.