The CEO of this global insurer recently remarked that the company was interested in ‘big takeovers’ in the U.S. This stock is a play on rising rates.
Allianz SE (AZSEY)
From Global Investing
Allianz SE (AZSEY) has taken its time recovering from the walkout of Bill Gross, which was our motive for purchase. But with the global economy shifting gears after the shocks of 2016, for 2017 there is much to be said for the corporate bond market where Gross was rainmaker, then based at the Allianz sub in California.
AZSEY of Germany still is the largest shareholder in Pimco, which is likely to benefit as US and global bond prices reverse as interest rates rise. Since the Brexit vote and the US election, the bond market has begun this switch to higher yields and lower prices, spooked by fear of inflation. This made interest rates rise more than expected above all in the US. The result is that after experimenting with low and even negative interest rates, the world is returning to normal. Normal means yields are positive and rising again. It also means that using stock dividends as a way to earn money with your money is no longer a slam dunk victory.
It is uncertain if the reversal will continue long and high because of secular changes. Global debt levels are up and aging population in the industrialized world means they will be retiring and spending less. That will nip growth and inflation in many countries but probably not in the USA (given the Trump plans) nor in Britain (because of the fall in sterling post-Brexit.)
Bonds will also become scarcer if the US tax report program of the new administration will include an end to the tax deductible corporate bond, widely used lately for share buybacks and paying dividends rather than for capital expenses. With fewer bonds available and the need for yield remaining, getting bond manager fund help will become crucial to investors.
The bond market, unlike that of shares, does not work well with indexes and exchange-traded funds. You need real experts examining the market for the best returns at the lowest risk. For US investors, that probably means entrusting their pensions and assets to San Diego-based Pimco again. It won’t be Bill Gross but we will need another bond king. The new ruler of the bond market will have to be able to invest in multiple markets, not just in the USA where Gross flourished. With greater integration with the insurance arm of Allianz in Frankfurt, Pimco is well-placed to rise to the challenge.
Vivian Lewis and Martin Ferera, Global Investing, www.global-investing.com, 212-758-9480, December 30, 2016