Investors have pummeled insurance and financial stocks lately, but a
University of Iowa finance professor is actually making money trading
them. Insurance expert Ty Leverty is assistant professor of finance and Tristar risk
management fellow at Tippie College of
Business. He has been experimenting since last fall with a strategy of
trading only the stocks of well-managed property and liability
insurance companies. Although his test portfolio is extremely volatile,
its value shows an increase of about 10 percent, as opposed to a
broader market loss of about 30 percent during the same time. Press-Citizen.com reports:
Leverty noticed last fall that when bad financial news is released, the stocks of property and liability insurers take their hits along with life insurance companies and other businesses in the financial services sector. However, he noticed that solid, well-managed property and liability companies usually bounced back the next day.
Leverty suspects that investors unload all insurance stocks on bad news days, assuming that all of them are widely exposed to the failed financial products that led to the credit crisis and brought down so many financial services companies. However, he said property and liability stocks hold mostly short-term assets to match their mostly short-term, low risk policies, minimizing their exposure to the crisis. "Those companies aren't as exposed to collateralized debt obligations or some of the other toxic assets like banks and life insurance companies are," said Leverty College's Tristar risk management fellow. The next day, he said investors realize that and buy the stocks back, and the price rebounds.
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