Spotlighting a top holding
Anchoring Manulife Global Equity Class is Marsh McLennan, a global leader in insurance brokering, risk management and consulting2. “Insurance will always be needed,” says Moroz. “And while insurance brokers place risk, they don’t take the balance sheet risk themselves. They are less capital-intensive, which allows them to weather riskier times.”
Moroz points out that although insurance policies are complex, they are well indexed against inflation. “It’s an interesting business model when you think about a potentially recessionary environment. If you have better earnings quality – you’re sure your revenue is going to be around – naturally you’re better off if you don’t have to shoulder as much risk.”
A broad key concern Moroz does raise, however, is the influence the current environment is having on discount rates for global equities. “A 7% discount rate versus an 8% discount rate, that 1% change is probably a 15, 16, or 17% change in the value of the stock market, which is quite substantial.”
But while interest rates and discount rates are rising, and assets are worth less, a silver lining can still be found.
“Right now, your reinvestment rate is worth more,” Moroz explains. “Something people often forget is that when interest rates go up, and your discount rate goes up, and stock values are down, it means companies can buy back stock at a better price. So, you can reinvest new money into the market at better prices. And if your investment manager is charging you fees, they’re going to be less.”
