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Q: Two related questions. I purchased SLF several months ago as a hedge against inflation. Since then, the stock has done nothing but decline and I am now down 12%. Please explain why it is performing so poorly now and provide thoughts on how it could potentially be impacted by a recession. Still with finance, would GSY (despite its smaller size) have generally the same economic drivers as the Big Five banks? Thank you.

Asked by Maureen on May 02, 2022
5i Research Answer:

Generally, insurance companies do better in times of rising rates. This is occurring, but now has been over-ruled by investors concerned about a recession and its financial impact. The financial sector has been hit fairly hard recently. On SLF specifically, the impact of Covid has hit it harder than analysts expected. EPS may decline a bit this year but decent growth is forecast next year. With a dividend above 4% and at 10X earnings, we think its valuation reflects most concerns. The market has been exceptionally weak and we would expect it to at least bottom soon. GSY is impacted by rates and the economy, but has no housing or corporate loan exposure and its client base is quite different than that of the banks. It has typically done OK in recessions.