Metlife Inc (NYSE:MET) a Beneficiary of Higher Interest Rates

January 23, 2017

Co-Portfolio Manager Jennifer Chang of Schafer Cullen Capital Management says Metlife Inc (NYSE:MET) is a high-quality life insurance company with a strong track record of underwriting and financial discipline, and is a major beneficiary of higher interest rates.

It’s one of the cheapest stocks in the portfolio, trading at about 10 times earnings with a 3% dividend yield and having raised their dividend quite substantially over the last couple of years. MetLife is led by Steve Kandarian, who used to run the investment portfolio back during the financial crisis. He is a strong risk manager and gets a lot of credit for navigating the investment portfolio successfully during that time by avoiding a lot of subprime MBS.

MetLife is a major beneficiary of higher interest rates and a steeper yield curve, given that their investment portfolio is a longer-duration book. The company is also undergoing a bit of a portfolio transformation at this point with the impending spinoff of their U.S. retail business, including most all of their variable annuities. That segment has been a huge overhang on life insurance companies since it tends to have significant tail risk, is highly interest-rate-sensitive and extremely competitive due to the aggressive industry guarantees.

We think the remaining business will generate steadier earnings, more consistent returns and, therefore, get a better multiple as it focuses on growing its international businesses over time. They have a great footprint in Asia, Latin America and the Middle East. For many of our portfolio companies, we still believe that emerging markets will continue to be a major driver of growth.