Is the IAG share price a defensive buy amid rising interest rates? – The Motley Fool Australia

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Are IAG shares finally in the buy zone yet?
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The Insurance Australia Group Ltd (ASX: IAG) share price has not proven to be a defensive buy at any time in recent history. This is an ASX 200 share that remains down by 7.77% over the past 12 months, and down almost 32% over the past five years, after all.
The IAG share price closed on Friday up 0.11% at $4.47. The company’s shares are now up 0.34% over 2022 thus far.
But could the tide be turning for IAG shares? We do have a vastly different economy to even that of 12 months ago. Inflation is rising, and so are interest rates. And this is causing some ructions and realignments across the ASX share market.
Financial shares like insurers and banks are often touted as effective defensive investments in this kind of macroeconomic environment. So does this mean that IAG could be a defensive buy today for a more uncertain future?
Well, one expert investor who thinks it might be is Michael Maughan, of Tyndall Asset Management. Maughan spoke to Livewire recently about his views on the investing landscape. Here’s some of what he said:
Supermarkets and insurance are the two sectors that stand out in the current inflationary environment…
We expect supermarkets will continue to be key defensive havens as inflation accelerates. Insurance is similar in that while repair costs are rising, the pricing environment means they can be absorbed, and longer-term margin goals met. Whatever claims inflation the general insurers are seeing has already been priced into higher premiums, and we see potential for further increases.
This current inflationary environment has seen bond yields rise and expectations increase for significant cash rate rises. This means that the interest earnings on the premium float of insurers are rising and will add meaningfully to profits.
Maughan goes on to name the “larger brands of listed insurance groups” as the main beneficiaries of these factors. Those were Suncorp Group Ltd (ASX: SUN, QBE Insurance Group Ltd (ASX: QBE) and, yes, IAG shares.
But Maughan isn’t the only one recommending a look at IAG today. As my Fool colleague Zach covered last week, ASX brokers Credit Suisse, JP Morgan, Jarden, Barrenjoey Markets and Citi are all bullish on IAG shares right now.
Each broker has a share price target above $5.14. But other brokers like Macquarie, Barclay Pearce and Morgan Stanley are less optimistic, with Morgan Stanley in particular rating IAG as a sell.
So that’s how some expert investors are treating the IAG share price at the present time.
At the current IAG share price, this ASX 200 insurance share has a market capitalisation of $11.03 billion, with a dividend yield of 2.97%.
Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Insurance Australia Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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