Time to Buy Insurance ETFs?

Zacks

Earnings season so far has been pretty lukewarm to put it mildly. Many key companies such as Coca-Cola, Google, Microsoft, as well as other big names, have missed on earnings or sales, with more than a few warnings about coming quarters too.

While this has been a broad trend—especially when it comes to revenue misses—there has been one corner of the market that has seen some pretty consistent beats and a relatively good outlook; financials. This sector has largely had a solid start to earnings season and is actually expected to be responsible for the bulk of the earnings growth in the stock market this quarter (see 3 Sector ETFs to Profit from Rising Rates).

In fact, according to our research, the financial sector is expected to see an earnings increase of 19% year-over-year. This compares extremely favorably with the rest of the market, as without this important sector we could be looking at negative earnings growth for the quarter.

Given this, some investors might want to look to the financial sector for exposure. Unfortunately, big banks and other in-focus segments of the space are pretty popular, and thus may be bid up already. Still, there is one segment that could offer stellar returns in this space though, the often overlooked insurance sector.

Insurance Sector in Focus

This space could be a winner thanks to many of the same trends that are impacting the broad financial space as companies in this corner of the market also benefit from a rising rate scenario, as they can earn more on their investment portfolios. Plus, an improving labor market and a stronger business climate increases demand for insurance services as well (also see Buy these ETFs for the Brighter Insurance Sector Outlook).

If that wasn’t enough, investors should also note that the various insurance segments receive solid Ranks from a Zacks Industry Rank look. In fact, two segments are currently in the top 50 for ranks—accident/health and multi-line—while another two industries—life and property/casualty—are both Ranked in the top half, suggesting that the broad sector is well-positioned compared to many of its peers.  

How to Play

A low risk way to invest in this trend is with insurance ETFs. These offer investors a broad look across the space, holding companies in each of the various industry segments described above.

While there are a few choices in this space, we like the SPDR S&P Insurance ETF (KIE) and the iShares U.S. Insurance Index Fund (IAK). These two both have Zacks ETF Ranks of 2 (Buy) and are well positioned for further gains this earnings season and beyond (see all the top Ranked ETFs).

For more on these ETFs, as well as the broad investment case for the insurance industry, watch our short video on the subject below:

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Read the analyst report on IAK

Read the analyst report on KIE

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