Canadian lifecos (OW) vs. banks (MW): After successfully favouring lifecos over banks in 2015, CG analyst Gabriel Dechaine recently inversed the trade. From a quant/macro viewpoint, we cannot make the switch just yet. A key driver between lifecos and banks is relative forward EPS strength. As Figure 2 shows, lifecos’ forward EPS still outpace those of banks and the rising trend in relative pricing power (i.e., insurance premiums/financial services & mortgage interest costs) suggests further strength. Also, market-based variables have been supportive for lifecos’ EPS in the fourth quarter with bond yields and global equities rising while the CDN$ has fallen to multi-year lows (Figure 3). Last, lifecos trade at a 7% premium to banks on a forward PE basis but this is reasonable given the superior EPS growth rate projected next year (11% vs. 4%). 

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