In a rare turn of events, once-loved Canadian bank stocks are no longer the favourites. Instead, investors are turning their attention to the country’s life insurers.
The banks were performing very well until September 2018, “and then the bloom went off the rose,” said John Kinsey, a portfolio manager at Caldwell Securities Ltd. in Toronto. Some investors have soured on banks because of concerns about declining interest rates, mortgage quality and high levels of consumer debt, which are a risk to the economy.
Lifeco stocks outperforming bank stocks is an unusual occurrence, with back-to-back annual outperformance an even rarer outcome Lower interest rates due to a potential economic downturn can also have a negative impact on insurers. But the largest Canadian lifecos have significant exposure to businesses outside of their home market. Manulife generated about 62 per cent of its 2018 revenue internationally, while Sun Life made almost 45 per cent of its sales in Asia and the U.S., according to Bloomberg data.