Insurance stocks have outperformed the overall market during the past four weeks, but financial advisers are reluctant to jump in.
New York-based Keefe Bruyette & Woods Inc.'s KBW Insurance Index (KIX) gained 28.16% between March 16 and April 14, closing at 67.32 last Tuesday.
Members of that index include life carriers Genworth Financial Inc. and The Hartford Financial Services Group Inc., as well as multiline insurers The Chubb Corp. and The Travelers Cos. Inc.
During the same period, the three major market indexes also rose, but not as spectacularly as the insurers'. The Dow Jones Industrial Average gained 9.92%, the Standard and Poor's 500 11.59% and the Nasdaq Composite Index 12.94%.
Advisers point to myriad causes behind the recent run-up in insurance stocks, including the Financial Accounting Standards Board's decision to lighten the mark-to-market accounting rules this spring and news of insurers' eligibility to participate in the Department of the Treasury's Troubled Asset Relief Program.
Norwalk, Conn.-based FASB's move was a boost for banks and insurance companies, as both carried battered securitized assets on their balance sheets, said Bryan D. Beatty, partner at Egan Berger & Weiner LLC in Vienna, Va. The firm has $110 million in assets under management.
JURY IS OUT
Still, though current events thus far have translated into share price gains for both banks and carriers, Mr. Beatty and other advisers re-main wary of jumping into those stocks.
For example, Jim Weil, partner at Financial Strategy Network LLC in Chicago, said he is opting for stocks that produce strong dividends and investment-grade bonds for clients. The firm manages more than $500 million in assets under management.
"The jury is still out on how much bad stuff is in the banks, so I wouldn't overload bets on financial stocks," Mr. Weil said.
Aside from sector gains for insurance, the rising tide has managed to lift even the laggards.
For instance, Conseco Inc. of Carmel, Ind., which traded as low as 26 cents a share March 10, has rapidly recovered its value in the past month. The carrier rose to $1.40 a share, up 281% between March 16 and last Tuesday.
Some advisers spotted the possible value in some stocks, but they prefer to pass on buying individual shares, taking an asset allocation approach. "Rather than picking winners and losers, if you want in on that asset class, check out the large-cap-value space," Mr. Beatty said.
Another possible alternative is using sector rotation funds, which require a more active management style. Such strategies aim to benefit from various stages in an economic cycle, anticipating that events — such as a shift in consumer demand — might have an effect on how certain market sectors perform.
However, Mr. Beatty said, it is better to find a manager with the expertise to understand the market momentum for such strategies. His firm prefers working with general bets via asset allocation or sector exchange traded funds.
Geoffrey I. Kanner, president of Kanner Financial Services LLC, isn't rushing to buy insurance stocks, as he expects the rally to be temporary.
However, he mentioned a client who was advised to sell half the stocks from a portfolio that was almost entirely in the financial sector. The companies included a multiline insurer that Mr. Kanner didn't want to identify.
"With this rally in some stocks, it could be working against her be-cause now she thinks we're going to sit and wait for the portfolio to come back to the way it was," he said.
Mr. Kanner's firm manages less than $25 million and is based in North Haven, Conn.
Still, clients want to get back into the market.
Rather than insurance stocks, Mr. Kanner has been guiding clients back into investments through dollar cost averaging and asset allocation strategies.
In the end, though a bump in share prices brings back memories of a time when insurers were a steady investment, advisers anticipate more volatility with life carriers. "There are glimmers of hope, but I don't think we're out of the woods," Mr. Weil said.
E-mail Darla Mercado at [email protected].
