We are reiterating our Neutral recommendation on Manulife Financial Corp. . Though we remain upbeat about the company’s long-term growth profile, exposure to interest rates and equity market volatility keeps us on the sidelines.
Manulife is one of the dominant life insurers within its domestic Canadian market and possesses rapidly growing operations in the U.S. and several Asian countries. It has a diverse global presence with 75% of its earnings coming from outside Canada. Manulife has been doing business in the Asian market for over a century, which gives it a competitive advantage.
Moreover, changing demographics have increased demand for insurance and wealth management products in these regions and the company will likely benefit from this due to its longstanding presence.
Manulife is aligning its product offering to concentrate more on higher margin, low risk products as against higher risk-capital intensive products. Currently, 88% of its total premiums and deposits are in these targeted (lower-risk) products. Although this will result in subdued growth relative to its historical pace, we believe that it will deliver more sustainable growth targets and improve product margins as well as earnings consistency over time.
Manulife’s business exposes it to market volatility, though the company is effectively building its hedging program to decrease both interest rate and equity market exposure.
Manulife retains a high quality investment portfolio. Its invested assets are highly diversified by sector and geography and have limited exposure to the high-risk areas. We continue to view the company’s investment management as a significant competitive advantage.
However, the company exposure to equity and interest rates risk may pressure the company’s capital position.
Manulife currently retains a Zacks Rank #4 (Sell).
Other companies StanCorp Financial Group Inc. with Zacks Rank #1 (Strong Buy), Lincoln National Corp. and Protective Life Corp. with Zacks Rank #2 (Buy) are worth investing in.