Should I sell Legal & General Group and buy even more Phoenix shares instead?

My Phoenix (LSE: PHNX) shares are on a roll. They’re up 36% in a year, which is pretty good going for a FTSE 100 insurance conglomerate. They boast a trailing dividend yield of 8.2%, so my total return‘s heading towards 45%. Which is even better.

This is exactly what I hoped would happen when I bought Phoenix Group Holdings, to use its full name, in January and March last year. At the time, the shares looked brilliant value, with a price-to-earnings ratio of around six or seven, and a yield heading towards double digits.

Two things worried me at the time. First, financials sector ops had been out of favour for years, with low valuations and high yields everywhere I looked. Was I missing something?

Second, I already had exposure to the sector through Legal & General Group (LSE: LGEN), which had a similar profile (cheap plus lots of income). Wasn’t I simply buying more of the same?

In many respects, yes. But not entirely.

Two very different years

Legal & General shares haven’t done half as well. They’re up just over 10% in the last 12 months, less than a third of the growth from Phoenix.

Phoenix has earned those returns. On 17 March, it posted full-year operating cash generation of £1.4bn, up 22%, hitting its 2026 target two years early. Adjusted operating profit jumped 31% to £825m, and it paid down debt too. The total dividend rose around 2.5% to 54p.

However, Legal & General also delivered a solid set of numbers on 12 March. Core operating profits rose 6% to £1.62bn. The full-year dividend jumped 5% to 21.36p and it’s planning a huge return of capital to shareholders worth £5bn over three years.

On Tuesday (17 June), Legal & General hosted a deep-dive day into its asset management business, and it seemed positive. Management aims to grow profits from the unit to between £500m and £600m by 2028, targeting 6-10% compound annual growth.

It’s also aiming to grow private markets assets to more than £85bn, from £57bn, while lifting fee margins to double digits.

Big asset managers

It’s impressive stuff. Legal & General’s the UK’s biggest asset manager, with £1.1trn under management, so it has scale on its side. And while Phoenix has surged, it’s not clear how much more juice is left in the tank. Analyst forecasts suggest a small pullback from here, with a median target price of 640p. By contrast, the L&G forecast points to a 5% rise to 268p.

Phoenix is enjoying its moment in the sun but fortunes can shift quickly. I’m thrilled by Phoenix and underwhelmed by Legal & General, but the gap isn’t as wide as I thought. And there’s no guarantee that the outperformance will continue in either direction.

It’s tempting to switch from the laggard to the leader, but sod’s law alone suggests that’s a risky manoeuvre. So I’ll keep things as they are.

I think both insurance giants are worth considering for long-term income and growth. But in the spirit of diversification, I’ll seek that in other sectors.

The post Should I sell Legal & General Group and buy even more Phoenix shares instead? appeared first on The Motley Fool UK.

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Harvey Jones has positions in Legal & General Group Plc and Phoenix Group Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.