KBWP: Insurance Stocks Remain Among The Best In The Market
I rate KBWP a buy, citing its attractive valuation, strong technicals, and positive seasonality for property & casualty insurance stocks. The Invesco KBW Property & Casualty Insurance ETF (KBWP) has outperformed both the Financial Select Sector SPDR® Fund ETF (XLF) and the SPDR S&P 500 ETF Trust (SPY) year-to-date, benefiting from insurers’ pricing power and financial strength post-2022 inflation.
Financials is one of six S&P 500 sectors up on the year. Despite intense volatility from the February 19 stock market peak to the low notched on April 7, banks and other financial institutions have generally outperformed the broader market. The strong performance can be attributed to insurers’ ability to maintain pricing power and their overall financial strength following the 2022 inflation surge.
Key Investment Thesis
- Attractive Valuation: KBWP boasts a low P/E ratio, making it an attractive investment opportunity in the current market.
- Strong Technicals: The ETF has demonstrated strong technical performance, outperforming its peers.
- Positive Seasonality: Property & casualty insurance stocks typically exhibit positive seasonality, further supporting the investment case for KBWP.
- High EPS Growth: The ETF has shown high EPS growth, indicating strong underlying fundamentals.
- Potential for Record Dividends: With insurers’ improved financial strength, there’s potential for record dividends, adding to the appeal of KBWP.
Risks and Considerations
While KBWP presents a compelling investment opportunity, there are several risks to consider:
- Portfolio Concentration: The ETF’s concentration in specific insurance stocks could pose risks if those stocks underperform.
- Liquidity Concerns: Investors should be aware of potential liquidity concerns that could impact trading.
- Unique Delayed Cost Recognition in Insurance: The insurance sector has unique accounting practices that can affect financial reporting and investor perceptions.
Despite these risks, the fundamentals of KBWP remain compelling. I expect long-term upside for the ETF, although there may be near-term consolidation. The combination of attractive valuation, strong technicals, and positive seasonality makes KBWP a buy in my analysis.
