Investors who refined their financials exposure to property and casualty were rewarded in 2022.
P&C has consistently outperformed the S&P 500 financials sector since mid-February. The Invesco KBW Property & Casualty ETF (KBWP) has increased 11.4% year to date, while the financials sector has declined -9.7% during the same period, as of December 6.
Eliminating energy and commodities focused ETFs, KBWP is Invesco’s top-performing ETF year to date as of December 6. Since October 1, when equities began their rebound, KBWP is up 14.6% while the finanicals sector is up 6.5%.
P&C was better positioned than other segments in the financials sector to withstand the challenges roiling global markets this year. P&C’s business models are able to pass on costs to consumers via higher premiums.
P&C premiums have increased for the last 20 consecutive quarters, leaving these companies well prepared for the effects of inflation, according to Rene Reyna, head of Thematic & Specialty Product Strategy at Invesco. On the claims side, Reyna said the premium growth the P&C space has seen has offset the increasing cost of repairs relevant to auto claims, and the increasing cost of construction materials and labor in property claims.
While P&C is generally not a high growth segment of the market, these companies will typically have a steadier business model because they have the ability to pass on costs to consumers that other segments do not have.
P&C companies offsetting costs through higher premiums is a trend that Reyna expects will continue. With a longer-term perspective, P&C is expected to continue to be more insulated in some of the downdrafts affecting the market.
While growth-oriented investors may not see a fit for these value-tilted stocks, there are strengths in refining financials exposure to P&C in the current market environment. A long allocation to P&C might be an ideal fit for longer-term investors that are open to a value tilt.
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