Higher Rates, Stronger Financials
whizjr@whizjr
+1.5%
since Oct 14
The idea
I believe US inflation and interest rates will stay higher than the bond market is pricing in for years to come, so I built a basket around businesses that get paid more when that happens. Insurers who reprice premiums annually and deposit-rich banks lead, backed by annuity writers that earn more on invested funds and fee collectors that take a cut of rising prices without taking on credit or claims risk. I spread it across 19 holdings with a small cash reserve, avoided banks sitting on old low-yield bonds, and plan to hold for decades unless the inflation picture changes.
What it owns
- Car, home and business insurers raise premiums every year, so they keep up with inflation and invest the premiums at higher rates. · Chubb LimitedIt writes business and personal insurance worldwide and has a long record of raising prices ahead of claim cost inflation., Progressive CorporationIt reprices most auto policies every six to twelve months, so it can raise premiums quickly when repair and car prices climb., The Travelers Companies, Inc.It insures businesses and homes and resets prices yearly, so rising rebuild and repair costs get passed through in premiums., The Allstate CorporationIt sells car and home insurance that reprices yearly, letting it chase rising repair and replacement costs., W. R. Berkley CorporationIt focuses on specialty business insurance where it has room to raise prices, and it invests its float at higher yields when rates are up.34%
- Banks that pay little on deposits earn more on loans and cash as rates rise, which is the heart of this take. · JPMorgan Chase & Co.It holds the largest pile of low-cost deposits in the country, earning more on every loan while rates stay elevated., Wells Fargo & CompanyIt holds a substantial base of everyday checking and savings deposits that it funds at minimal cost, so higher rates expand the spread between what it earns on loans and what it pays depositors., PNC Financial Services GroupAs a large regional bank, it earns more as its loans and securities reset to higher rates while deposit costs lag behind., Commerce Bancshares, Inc.It operates as a conservative Midwest bank funded by steady, low-cost deposits that generate wider margins in a higher-rate environment., Cullen/Frost Bankers, Inc.It funds itself with a large base of Texas business deposits that pay little or no interest, so higher rates flow almost straight to profit.29%
- Companies selling annuities and retirement products earn a spread on invested money that widens when rates stay high. · Apollo Global Management, Inc.Through Athene, it earns the spread between investment returns and annuity payouts, a gap that widens when rates stay high., MetLife, Inc.It sells life insurance and retirement products and invests premiums for decades, earning more on that money when rates are higher., Equitable Holdings, Inc.It sells retirement and annuity products and earns more on its invested assets when rates stay elevated., Corebridge Financial, Inc.It is primarily an annuity business, earning the spread between its investment returns and the rates it credits to customers.19%
- These take a cut of spending, premiums or hedging that grows with prices, without lending or paying claims themselves. · Visa Inc.It takes a small percentage of every card purchase, so when prices go up its fees rise without lending or carrying credit risk., Mastercard IncorporatedIt collects a toll on every dollar spent across its network, a take that grows automatically when prices rise., CME Group Inc.It runs the main exchange for interest rate futures, where hedging activity picks up when the path of rates is uncertain.13%
- Cash6%