EUR 850.00 For Business Accounts Only

Morningstar | Great West Benefiting From Buoyant Capital Markets

Great-West competes primarily with Sun Life and Manulife within its home market. We believe Great-West is the best run of the group, producing superior value for its shareholders, with an average return on equity of nearly 14% over the past five years. This contrasts with its other direct competitors, which have historically struggled to cover their cost of equity. We generally expect mediocre returns from the life insurance business, which we view as commodified, competitive, and at the mercy of the capital markets. Great-West has managed to set itself apart through disciplined underwriting, a focus on dominating the markets it knows best, creating an advantageous business mix by targeting less capital-intensive wealth management and retirement products, as well as its healthy participating policyholder business. Management’s adherence to this strategy is why we believe the firm will continue to generate excess returns.Great-West is mainly focused on Canada, which we think is wise and has allowed it to earn high returns on equity. In Europe, Great-West’s acquisition of Irish Life has provided the firm with a dominant position in investment management, with Irish Life now the life insurance market leader in Ireland. In our view this was a good move, as investment management has helped its European segment generate higher returns and is a moatier operation. In the U.S., Great-West aims to participate in the expected consolidation of the retirement industry through Empower Retirement, a major player in defined-contribution record-keeping. We like this, because the larger players will tend to dominate this market over time, leading to another source of stable fee income. Putnam continues to struggle to achieve consistent profitability given net flow headwinds in active asset management as well as bloated expenses. That said, we applaud management's decision to drive expense-reduction efforts, which have started to bear fruit, although we would prefer management cut the struggling asset manager loose to drive a superior ROE profile. Overall, we believe the firm will continue its pattern of superior execution, creating value for shareholders.