5th February 2016
Insurance – it's not all about meerkats and robots
Nick Martin, manager of Elite Rated Polar Capital Global Insurance
Insurance is an area we all end up spending more time researching than I'm sure we'd like. With the help of Sergei the Meerkat and Brian the Robot we trawl through pages of home, car, holiday and life insurance on at least an annual basis.
However, when it comes to investing in the sector, it's a whole other story. We asked Nick Martin, manager of Elite Rated Polar Capital Global Insurance, to tell us more about it.
Why do you think this sector is a good investment choice, Nick?
"Insurance is a must-have product for individuals and companies alike, and is often demanded by law.
When bad things happen, demand increases. The sector also marches to a different drum beat to the rest of the market, which makes it a good defensive investment and diversification tool within a wider portfolio.
Insurance companies also tend to produce a good overall yield – a yield that comes from both dividends and share buybacks – so total returns get a great boost. It's all about long-term compounding."
In which type of company do you invest?
"Rather than looking at the big insurers that we are all familiar with for our everyday insurance needs, Polar Capital concentrates on the underwriting companies and niche players that have something different. Ours is not a fund that is dependent on mother nature either, as you just can't forecast what she will do. The fund’s catastrophe exposure remains close to historic lows.
We have a natural bias towards companies listed in the US, Bermuda and London, as we are particularly keyed in to these markets. They tend to be smaller to medium-sized businesses where company management also owns shares so that their interests are aligned with ours."
How many companies does the fund invest in right now?
The fund usually has around 30 to 35 stocks, so we really are investing in just our very best stock ideas. We run a 'watch list' of around the same number of stocks, which are ready alternatives should we decide to sell a company.
The turnover is pretty low, however, as the dispersion of quality is vast in this sector – good companies tend to stay that way and the bad ones go bust! We tend to change just two or three companies each year.
Is Brexit (potential British withdrawal from the European Union) a worry for you?
Not really. Most insurance business is placed locally, where companies have people on the ground. If the risk is complicated, then they go to the big global companies like Lloyd's of London, as the deals they tend to underwrite need their technical knowledge and expertise.
This would still be the case if the UK left the EU, as evidenced by the fact that a lot of European-wide business is now done in Switzerland.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Nick's views are his own and do not constitute financial advice.
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