KIE: The Valuation Case Is Still Compelling After The Rally

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Insurance inflation is easing, with auto insurance seeing deflation in some areas, while home insurance remains high in disaster-prone regions.SPDR S&P Insurance ETF is rated a buy due to its low P/E ...

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however, the low valuation and positive momentum support a bullish outlook.Images By Tang Ming Tung  Insurance inflation is finally on the mend. After many quarters of sharp price hikes in home and vehicle insurance, the rate of increase is cooling. Some consumers in select areas of the country are even enjoying modest deflation in auto insurance. On the other hand, home insurance premiums remain on the race higher in hurricane and wildfire-prone spots. At the same time, insurance companies have enjoyed massive earnings gains. Pricing power has been high and regulatory efforts have been minimal to protect households. It's hard to say whether new rules may be on the way in the Trump administration, but we are seeing progress on the overall insurance inflation front. Shares of the nation's biggest insurance firms have done well, and I see positive trends while the industry's price-to-earnings ratio remains low. I have a buy rating on the SPDR S&P Insurance ETF (NYSEARCA:KIE). Home Insurance Inflation Easing FRED According to the issuer, KIE seeks to provide exposure to the insurance segment of the S&P Total Market Index, which comprises the following sub-industries: Insurance Brokers, Life & Health Insurance, Multi-Line Insurance, Property & Casualty Insurance, and Reinsurance. The ETF employs a modified equal-weighted approach which provides the potential for unconcentrated industry exposure across large, mid, and small-cap stocks. KIE is a moderate-sized ETF with assets under management of $929 million as of November 8, 2024. The fund's annual expense ratio is modest at 0.35% while its forward dividend yield is about on par with that of the S&P 500 at 1.3%. Share-price momentum has been very strong throughout the last year; KIE has returned 36% with muted volatility. KIE is considered a risky product, however, but I found that's primarily due to weak tracking error scores. It's diversification and 14.5% annualized volatility is not all that high. From a liquidity standpoint, the fund has high volume, averaging more than 1 million shares daily with a median 30-day bid/ask spread of just three basis points, per SSGA Funds. Digging into the portfolio, the 5-star, Neutral-rated ETF by Morningstar has mixed exposure across the style box. But with just 90% SMID cap access, there is a material cyclical risk with KIE. What's more, about half of the allocation is considered value, which also adds to its economic sensitivity. Given that the price-to-earnings ratio is just 10.5x today, and in light of its long-term EPS growth of 10.6, the resulting PEG ratio of less than 1 is quite compelling. Key risks include a weaker consumer and a domestic macro slowdown. Also, higher interest rates could lead to pressure on insurance companies, as well as weaker stock and bond markets given that many insurance companies are institutional investors. Also, we could be in a 'peak earnings' period for the industry, which would warrant a P/E that's lower than average for a cyclical ETF. KIE: Portfolio & Factor Profiles Morningstar KIE is equally weighted, so investors can be confident that no individual position will turn into a significantly large holding in the portfolio. The ETF has also benefitted from broader Financials-sector tailwinds in the past year, which I have detailed in analyses throughout 2024. With the bulk of the industry's Q3 earnings in the rearview mirror, volatility may be light heading into year-end. KIE: Holdings & Dividend Information Seeking Alpha Seasonally, we are actually getting closer to a somewhat bearish time of year. Over the past decade, the December to January stretch has been the weakest on the calendar. And while November is usually strong, last week's gain could have pulled forward the usual bullish trend for the month. KIE: Weak December-January Trends Seeking Alpha The Technical Take KIE has one of the most impressive industry ETF charts you'll come across. Notice in the graph below that shares are up nearly 70% on a price-only basis since September 2022. The long-term 200-day moving average is rising, with the 50dma above that, and price above both trend-indicator lines - a bullish setup. We also see that KIE broke out from a multi-month consolidation about a year ago and then did the same at the start of the second half of this year after consolidating in a symmetrical triangle. But take a look at the RSI momentum oscillator at the top of the chart - it is printing a series of lower highs, while KIE's share price has hit new highs. That's a bearish divergence which bears watching heading into the end of 2024. Overall, support is likely to appear near the rising 200dma and the April peak between $52 and $53, while there is no upside resistance, with KIE very close to all-time highs slightly under $60. Another near-term support is $55. KIE: Strong Uptrend, Monitoring Weaker RSI Trends, Rising 200dma Stockcharts.com The Bottom Line  I have a buy rating on KIE. While the fund is up massively in the last year, the low valuation and positive uptrend are important considerations. Its equal-weight management process helps keep risk in check from a single-stock point of view, but the portfolio can be quite cyclical.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2482241162"}