The Top Mutual Funds for Rising Interest Rates

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Mutual funds and rising interest rates


The Top Mutual Funds for Rising Interest Rates

Bob Ciura Nov 26, 2015

Here are a few mutual funds that predominantly invest in these areas of the market, which will be major beneficiaries from rising interest rates.

Markets Are Pricing in a Rate Hike

The reason is because financial institutions earn interest spreads between the money paid out on deposits and the money earned on lending. Spreads are bigger for longer-dated loans than they are for short-term deposits; as a result, the net interest margin expands when interest rates rise. This is why the financial sector stands to be the biggest winner in a rising rate environment.

Here are three mutual funds that will benefit from higher interest rates:

The three mutual funds listed each typically invest at least 80% of its assets in stocks of companies primarily engaged in the banking or financial services industries. These three funds are appropriate for retail investors, as they each hold minimum initial investments of $2,500. Also, they have performed very well this year, in excess of the S&P 500, which has returned just 2% year-to-date. This is why the three hold at least four-star ratings from Morningstar. Moreover, all three funds carry modest expense ratios below their peer averages.


Economists widely expect a rate hike next month. Investors should take note of this as well as the types of stocks that tend to do well in a rising-rate environment. The three mutual funds listed above predominantly invest in equities in the financial sector. All three have outperformed so far this year, on expectations of a coming interest rate hike. As such, these mutual funds should outperform once interest rates begin to rise.

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