Business

Timing is everything

The Sterling Report

By Marian Ross

Sunday, September 09, 2012    

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The local investment landscape is changing rapidly. With interest rates at historical lows and uncertainty and scepticism at all-time highs, Jamaican investors are turning towards the international capital markets for greater return. Local brokers have finally started to acquaint 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 of the new market favourites as well as how investors can maximize 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$112 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. In particular, the company's profitability and growth have been under pressure for the last few years. However, Genworth recently displayed a large improvement year over year moving from a net loss of US$136 million in the second quarter of 2011 to a net profit of US$76 million in the same quarter of 2012. Not surprisingly, the recovery in Genworth's profit was partly the result of higher earnings from its Mortgage insurance business segment. This offset small declines in other business segments such as life insurance, payment protection and wealth management. Still, this is the company's riskiest business line and its sustainability is also threatened by the general decline in creditworthiness of US mortgagors. The company will have to re-strategize how it manages these other more traditional lines of business. Since 2011, the Company has sought to shed non-core business assets and re-align its business operations to maximize synergies and focus on the highest value added activities.

Leverage ratios have also been slowly but surely declining over the past few years, as the company seeks to shore up its capital base. While the company's liquidity levels are not as strong as other companies in this credit rating category, the Group holding company maintains sufficient levels of liquidity and marketable securities to meet any potential needs of the subsidiaries. The Company has also been increasing the size and improving the quality of the assets held in its investment portfolio. Both S&P and A.M Best have affirmed their BBB credit ratings of Genworth Financial Inc's debt.

At the beginning of the year, a nine year Genworth bond was trading slightly below par at roughly 97 cents per dollar. The bond is now trading just above 102. Investors who bought Genworth at a price of 99 in January 2012 would have earned a total holding period return of 10.16 per cent as at September 7, 2012. 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 right. Contact the investment advisor who gets you in at the right time. Remember, timing is everything.

Marian Ross is a business development officer at Sterling Asset Management. Sterling provides financial advice and instruments in US 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

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