Exchange Traded Funds (ETFs)

ETF Talk: Being Prepared for Anything with an Insurance ETF

There is a famous saying that has been floating around the internet regarding the “Five Ps of Survival”: Prior Preparation Prevents Poor Performance. That is, if you study the ways in which whatever you are planning will go wrong and take steps to prevent them, the chances of something bad happening will be greatly reduced.

Indeed, a glance at any major newspaper only serves to underscore the notion that we live in an uncertain world. The war between Russia and Ukraine is continuing to rage, as is the conflict between Israel and Hamas in Gaza. Both seem unlikely to end anytime soon, and the effects of these conflicts are being felt far beyond their borders. Indeed, the International Monetary Fund (IMF) reported that the world economy is “limping” from the effects of high interest rates and the conflicts in both regions.

It should come as no surprise that the insurance industry is reacting to the world’s uncertainty with changes of its own. A report by a team from Deloitte noted that the field, in the face of frequent and more severe risks, is undergoing a shift from reacting to risks (the old model) to launching “transformation efforts aimed at preventing losses from happening in the first place” through “influencing and propelling … decisions and strategies of clients.”

Given the presence of all this uncertainty, as well as the dynamic changes underway in the insurance sector, it might conceivably be wise to have some insurance protecting you, those closest to you and your assets from disaster. An exchange-traded fund (ETF) dedicated to insurance, iShares US Insurance ETF (NYSEARCA: IAK) recently had a very strong first quarter.

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IAK is an ETF that is focused on the small-cap part of the insurance sector, including insurance companies, property and casualty insurance companies and life insurance companies. All stocks in the portfolio are market-weighted and subject to a cap of 22.5%. In addition, to qualify for inclusion into IAK’s portfolio, companies must have a market cap of at least $250 million.

Some of the firms in IAK’s portfolio include Progressive Corporation (NYSE: PGR), Chubb Limited (NYSE: CB), Travelers Companies, Inc. (NYSE: TRV), American International Group, Inc. (NYSE: AIG), Aflac Inc. (NYSE: AFL), Allstate Corporation (NYSE: ALL), Prudential Financial, Inc. (NYSE: PRU), MetLife Inc. (NYSE: MET) and Arch Capital Group Ltd. (NASDAQ: ACGL).

As of April 30, IAK has been down 4.90% over the past month and 4.76% for the past three months. It is currently up 11.90% year to date.

Chart courtesy of www.stockcharts.com

The fund has amassed $616.34 million in assets under management and has an expense ratio of 0.40%.

Overall, the IAK ETF may be a good choice for investors looking for exposure to the insurance sector, but it’s important to carefully consider the risks and potential returns before making any investment decisions.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to email me. You may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Forecasts & Strategies, Tactical Trader, TNT Trader, Five Star Trader, Bullseye Stock Trader, and The Deep Woods. His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.