Investing: Aflac struggles with losses overseas
Question: My stock in Aflac Inc. has been a poor performer. Please give me the company’s prospects.
Answer: The largest supplemental health insurer, after weathering disruption from the natural disaster in Japan where it has three-fourths of its premiums, is struggling with losses from European bank holdings in its investment portfolio.
Current and potential investors must weigh whether the advantages of this insurer’s proven corporate strategy, growth potential and reduced stock price outweigh its obstacles.
Aflac shares recently are down 40% this year. Second-quarter earnings fell 52% on continued investment losses, though premium income was up in Japan and the U.S.
Aflac’s biggest product is cancer insurance sold in Japan, though it has broadened its product lines in the U.S. and Japan to include accident, disability and long-term-care insurance.
It enjoys strong customer loyalty in Japan, where an aging population ensures future premium growth to augment that nation’s underfunded healthcare system. Deregulation of the Japanese financial system provides new opportunities, though new competitors are also part of that equation.
Losses tied to securities of troubled European banks, such as those in Greece, Portugal and Ireland, are Aflac’s primary worries. Consensus analyst opinion on reduced-price Aflac shares is “buy,” according to Thomson Reuters, consisting of seven “strong buys,” seven “buys” and six “holds.”
The Aflac duck, star of the company’s U.S. TV commercials, recently lost the source of its voice, comedian Gilbert Gottfried, who was fired after jokes on Twitter about the Japanese earthquake and tsunami. The company replaced him with a sales manager from Minnesota.
Intrepid Small Cap Fund has new managers
Question: Will Intrepid Small Cap Fund continue to do well? Should I increase my holdings?
Answer: Although it was one of the best-performing funds during the 2008 financial crisis, its manager during that period resigned a year ago.
Jayme Wiggins, a former small-cap analyst who also previously ran a high-yield fund, has run the fund since then. He is assisted by Intrepid Capital Management Inc. co-founder Mark Travis and Greg Estes, both of whom run other Intrepid funds.
This fund tends to hold a lot of cash if it feels stocks are overvalued. That means you should consider its potential high cash stake in relation to the rest of your personal portfolio.
The $657-million Intrepid Small Cap Fund is up 4% over the previous 12 months, ranking in the upper 10% of small-cap value funds. Its three-year annualized return of 14% placed it at the top of its category.
“The managers remain disciplined about investing in very sound, high-quality companies that will hold up better during market downturns,” said Katie Rushkewicz, mutual fund analyst with Morningstar Inc. “Relative to other small-cap value funds it has been holding up pretty well, though it should play a smaller role in a portfolio because small caps can be more volatile.”
Rushkewicz cautioned that the expense ratio is higher than that of the typical no-load small-cap fund.
Intrepid Small Cap Fund has about 63% of its portfolio in stocks and the rest in cash. Foreign stocks made up about 6% of its assets. More than one-fourth of the fund’s stocks were in technology, with smaller concentrations in industrials, consumer services and financial services.
This no-load (no sales charge) fund requires a $2,500 minimum initial investment and has an annual expense ratio of 1.40%.
Andrew Leckey answers questions only through the column. Write to him at yourmoney@tribune.com.
