Why has the share dropped., page-98

@traineeinvestor

Great summary, I agree with all your points.

I particularly agree with the fact that, over the longer term, CGF will naturally benefit from higher interest rates (especially as the average duration of the annuity book increases).

Regarding FX risk, even though it isn’t explicitly stated, I would assume that foreign equity holdings (in the Life portfolio) are not currency-hedged; that would have acted as a compensating factor in 2018, by the way, with equity prices down and AUDUSD down (by way of example, the AUD value of the S&P500 was actually marginally up for the year).

And yes, regulatory risk has of course increased.

As you very well said, the bigger picture (dominant market position + favourable demographic tailwinds) remains overwhelmingly positive, though.

And, if the demand for annuities grows as expected, the composition of the Life Investment Portfolio itself may well look very different in five years; let’s not forget that 50% of the annuity book will roll off over the next three years, and is duration-matched on the asset side.

Therefore, also in view of the fact that the stock is already trading ~35% lower from its Dec 2017 highs (at which point it wasn't overvalued, arguably), I’d say that a large amount of short-term risk factors is already priced in. Selling at today’s price doesn’t look to me like a terribly attractive proposition, in terms of risk/reward.

It will be interesting to scrutinise the half-year reports in February, both in terms of operating results and investment experience for each asset class.

Cheers