Genworth Life — one to watch
THE local investment landscape is changing rapidly. With persistently low interest rates, Jamaican investors have been forced to pursue international capital market options for the chance of greater returns. Local brokers are increasingly acquainting themselves with better yielding securities of higher credit quality.
Other than finding new securities, what else do investors need to know about investing in the international capital markets? Like most life lessons, the “timing is everything” adage is also applicable to investing. Today we’ll take a look at one particular bond, as well as, how investors can maximise value for themselves.
Genworth Financial Inc. provides insurance, wealth management, investment, and financial solutions in the United States and internationally. With total assets exceeding US$111 billion, the company is one of the largest in the United States. Genworth maintains a strong market position in the global industry. However, like many companies in the finance and insurance sectors, Genworth’s fiscal performance has been adversely affected by the global financial crisis and recession. This has been exacerbated by the prolonged low interest rate environment in the U.S. which has increased the cost of their long term liabilities.
Despite consecutive losses in the 3rd and 4th quarter of 2014, Genworth has posted US$154m in their 1st quarter profits for 2015. The company is focused on increasing profitability, which they aim to achieve by focusing on their core businesses, as well as increasing premiums to consumers (this strategic initiative has already received the necessary approvals).
Not surprisingly, the recovery in Genworth’s profit was partly the result of higher earnings from its mortgage insurance business segment. Still, this is the company’s riskiest business line and its sustainability is also threatened by the general decline in creditworthiness of US mortgagors. However, the company is pursuing cost and portfolio rationalisation efforts to increase the bottom line. Their effort to focus on their core businesses over the last few years has steered them to shed non-core business assets and re-align their business operations to maximise synergies and focus on the highest value added activities.
Now that you have absorbed that financial information, your next question should be, “how do I profit from this company?” We will use the Genworth 7.625 per cent bond maturing in 2021 as our example.
At the start of the year, this bond was trading at 101.87 giving investors a yield to maturity of 7.3 per cent. While some investors prefer to buy and hold their bonds, and enjoy the income via the coupon payments, others approach bonds with a trader’s hat. For those investors who prefer to trade their bonds, this bond has increased to a price of 106.5 (as at July 9) and has increased by 7.79 per cent (annualised).
Finding the right security is roughly half the battle. Knowing when to buy and when to sell is the substance of the challenge and creates the most value for investors, when done correctly. Contact an investment advisor who gets you in at the right time. Remember, timing is everything.
Sterling provides financial advice and instruments in U.S. dollars and other hard currencies to the corporate, individual and institutional investor. Visit our website at www.sterling.com.jm Feedback: If you wish to have Sterling address your investment questions in upcoming articles, e-mail us at: info@sterlingasset.net.jm or follow us on Facebook and Twitter.