A Rate Hike Is Back on the Table and Your Portfolio May Need Adjusting

Welcome to MutualFunds.com

Please help us personalize your experience and select the one that best describes you.

Your personalized experience is almost ready.

Join other Individual Investors receiving FREE personalized market updates and research. Join other Institutional Investors receiving FREE personalized market updates and research. Join other Financial Advisors receiving FREE personalized market updates and research.
Not interested

Thank you!

Check your email and confirm your subscription to complete your personalized experience.

Thank you for your submission

We hope you enjoy your experience

Channels

Fixed Income

Fixed income news, reports, video and more.

Municipal Bonds

Municipal bonds news, reports, video and more.

Practice Management

Practice management news, reports, video and more.

Portfolio Management

Portfolio management news, reports, video and more.

Retirement

Retirement news, reports, video and more.

Strategists

Learn from industry thought leaders and expert market participants.

Charles Schwab IMPACT 2019

Find the latest content and information here about the 2019 Charles Schwab Impact Conference.

Screener
Funds
Categories

18 Most Popular Mutual Fund Categories

Canada Equity Funds Global Equity Funds Micro-Cap Equity Funds Precious Metals Equity Funds Water Equity Funds
Consumer Staples Funds US Funds China Funds Israel Funds Retirement Income Funds
Bear Market Strategy Funds Market Neutral Funds Alternative Funds Commodity Funds
Currency Funds Mortgage-Backed Securities Funds High Yield Municipal Bond Funds Money Market Funds

View All Categories

Fund Companies

15 Most Popular Fund Companies

Vanguard Fidelity Investments American Funds T. Rowe Price
JPMorgan BlackRock Dimensional Fund Advisors Franklin Templeton
PIMCO Goldman Sachs Federated MFS
Charles Schwab John Hancock Invesco

View All Fund Companies

15 Most Popular Fund Company Quick Screens

Vanguard Index Funds Vanguard Retirement Funds Vanguard Money Market Funds Fidelity Index Funds
Fidelity Money Market Funds Fidelity Blue Chip Growth Equity Funds American Balanced Funds T. Rowe Price Blue Chip Growth Equity Funds
Blackrock Global Allocation Funds Franklin Income Funds PIMCO Income Funds Charles Schwab Index Funds
Charles Schwab Money Market Funds Invesco Real Estate Funds Matthews Asia International Funds

View All Fund Company Quick Screens

Articles

Articles

Mutual Fund Education Index Fund Center Domestic Stock Funds International and Global Stock Funds Target-Date Funds
Fixed-Income Funds Asset Allocation Specialized Funds Enhanced Index Funds Actively Managed Funds
No-Load Funds Bond Funds Equity Funds Hybrid Funds Resources For Mutual Fund Investors
Q&As and Interviews Lighter Side: Quizzes and More Taxation Expert Analysis and Commentary News
Advisors

Advisor Access

Receive email updates about fund flows, news, upcoming CE accredited webcasts from industry thought leaders and more.

Practice Management

Content focused on helping financial advisors build successful client relationships and grow their business.

Portfolio Management

Content geared towards helping financial advisors build better client portfolios.

Expert Opinion

Get insights on the industry trends and investment news from leading fund managers and experts.

Advisor Access
You have successfully subscribed to Advisor Access. Thank you!
Help us personalize your experience.
Which type of investor describes you best?
Help us personalize your experience.
What is your AUM?
Knowing your investable assets will help us build and prioritize features that will suit your investment needs.

Congratulations on personalizing your experience.

Email is verified. Thank you!

A Rate Hike Is Back on the Table and Your Portfolio May Need Adjusting

Daniel Cross

|

interest rate percentage
Investors felt a bit of a shock on Monday of this week when the Federal Reserve issued several statements indicating that a rate hike was seemingly back on the table as early as next month. Boston Federal Reserve’s President Eric Rosengren and member of the FOMC (Federal Open Market Committee) indicated that a rate hike could be needed as soon as June amidst a tightening labor market. Fear of pent-up inflation was the major concern that caused the Fed to suddenly reverse direction.
The abrupt near-term possibility of higher interest rates sent investors scrambling for some kind of direction but the broader indexes ended Monday on a flat note. However, higher rates could be a good sign for an economy that has struggled to put up any kind of data that investors could get behind—bullish or bearish. Considering how apathetic the markets have been this year, investors haven’t set up their portfolios to take advantage of the shift in expectations.

Rising Rates Means Having the Right Set up for Your Portfolio

An interest rate hike wasn’t expected until at least December of this year so the news that a rate could happen as early as June means most investors aren’t prepared for how the market should react. Higher interest rates should cause a bump in yields, which makes dividend stocks slightly more expensive to own.

But while the rate hike is bad news for defensive dividend paying stocks, it’s good news for sectors that thrive on higher rates.

Financials

The financial sector usually benefits the most from rising rates. Higher rates equals higher margins for banking and insurance stocks which are able to invest at higher rates of return and charge more for their products since most are based off of the 10-year treasury yield. Banks earn more from the spread between long term debt and short term debt.

Schwab Financial Services Fund (SWFFX) is a good pick up for rising rates. It contains a diverse set of financial and insurance assets, and comes with an expense ratio of 0.93—well below most sector-specific mutual funds. If rates do go up, look for this fund to take full advantage of the financial industry.

Consumer Discretionary

Higher interest rates are often precursors to higher consumer spending as a healthy labor market brings the economy to full employment with employee pay generally seeing a rise as well. More spending translates into more profits from consumer discretionary goods such as food, autos, clothes, hotels, and many other items.

One mutual fund that’s been consistently rated as one of the top consumer discretionary plays is Fidelity’s Select Consumer Discretionary Portfolio (FSCPX). It comes with a low 0.77 expense ratio and holds a wide selection of stocks in the consumer discretionary space. It’s been putting up healthy gains over the past few years as well with a 3-year and 5-year return of 12.50% and 13.10%, respectively.

Final Thoughts

If the Fed does raise rates next month, the issue will become at what pace will rates continue to rise. Will another cut be on the horizon for December or will that one be pushed back until 2017? Either way, the Fed will need to address the issue quickly once the decision to raise rates is made—or risk letting uncertainty take hold in the marketplace.

Sign up for Advisor Access

Receive email updates about best performers, news, CE accredited webcasts and more.

Popular Articles

Download our free report

Find out why $30 trillon is invested in mutual funds.

Why 30 trillion is invested in mutual funds book

Why 30 trillion is invested in mutual funds book

Download our free report

Find out why $30 trillon is invested in mutual funds.

Why 30 trillion is invested in mutual funds book

Download our free report

Find out why $30 trillon is invested in mutual funds.

Read Next

interest rate percentage

A Rate Hike Is Back on the Table and Your Portfolio May Need Adjusting

Daniel Cross

|

Investors felt a bit of a shock on Monday of this week when the Federal Reserve issued several statements indicating that a rate hike was seemingly back on the table as early as next month. Boston Federal Reserve’s President Eric Rosengren and member of the FOMC (Federal Open Market Committee) indicated that a rate hike could be needed as soon as June amidst a tightening labor market. Fear of pent-up inflation was the major concern that caused the Fed to suddenly reverse direction.
The abrupt near-term possibility of higher interest rates sent investors scrambling for some kind of direction but the broader indexes ended Monday on a flat note. However, higher rates could be a good sign for an economy that has struggled to put up any kind of data that investors could get behind—bullish or bearish. Considering how apathetic the markets have been this year, investors haven’t set up their portfolios to take advantage of the shift in expectations.

Rising Rates Means Having the Right Set up for Your Portfolio

An interest rate hike wasn’t expected until at least December of this year so the news that a rate could happen as early as June means most investors aren’t prepared for how the market should react. Higher interest rates should cause a bump in yields, which makes dividend stocks slightly more expensive to own.

But while the rate hike is bad news for defensive dividend paying stocks, it’s good news for sectors that thrive on higher rates.

Financials

The financial sector usually benefits the most from rising rates. Higher rates equals higher margins for banking and insurance stocks which are able to invest at higher rates of return and charge more for their products since most are based off of the 10-year treasury yield. Banks earn more from the spread between long term debt and short term debt.

Schwab Financial Services Fund (SWFFX) is a good pick up for rising rates. It contains a diverse set of financial and insurance assets, and comes with an expense ratio of 0.93—well below most sector-specific mutual funds. If rates do go up, look for this fund to take full advantage of the financial industry.

Consumer Discretionary

Higher interest rates are often precursors to higher consumer spending as a healthy labor market brings the economy to full employment with employee pay generally seeing a rise as well. More spending translates into more profits from consumer discretionary goods such as food, autos, clothes, hotels, and many other items.

One mutual fund that’s been consistently rated as one of the top consumer discretionary plays is Fidelity’s Select Consumer Discretionary Portfolio (FSCPX). It comes with a low 0.77 expense ratio and holds a wide selection of stocks in the consumer discretionary space. It’s been putting up healthy gains over the past few years as well with a 3-year and 5-year return of 12.50% and 13.10%, respectively.

Final Thoughts

If the Fed does raise rates next month, the issue will become at what pace will rates continue to rise. Will another cut be on the horizon for December or will that one be pushed back until 2017? Either way, the Fed will need to address the issue quickly once the decision to raise rates is made—or risk letting uncertainty take hold in the marketplace.

Sign up for Advisor Access

Receive email updates about best performers, news, CE accredited webcasts and more.

Popular Articles

Download our free report

Find out why $30 trillon is invested in mutual funds.

Why 30 trillion is invested in mutual funds book

Why 30 trillion is invested in mutual funds book

Download our free report

Find out why $30 trillon is invested in mutual funds.

Why 30 trillion is invested in mutual funds book

Download our free report

Find out why $30 trillon is invested in mutual funds.

Read Next

Advertisement

×

Wait! Do you know all the important aspects of mutual funds?

×

Free Advisor Access newsletter emailed to you.

Receive free and exclusive email updates for financial advisors about best performers, news, CE accredited webcasts and more.

Sign up for Advisor Access

Receive email updates about best performers, news, CE accredited webcasts and more.

Disclaimer: By registering, you agree to share your data with MutualFunds.com and opt-in to receiving occasional communications about projects and events. The contents of this form are subject to the MutualFunds.com Privacy Policy. You can unsubscribe at any time.

X