Sectors that benefit from rising interest rates: These 4 Key Sectors Can Be Especially Profitable In A Rising Interest Rate Environment

mutual funds

Jefferies recently tapped AMG as a top pick among asset managers, saying «2023 will drive increased demand to fixed-income and liquid alternatives.» They’re hardly alone in their bullish outlook. The average rating among the eight analysts covering the stock tracked by S&P Global Market Intelligence is a Buy. Plus, shares are up nearly 60% in the past three months after a blowout earnings report in November and strong forward guidance that included a double-digit prediction for earnings growth. That strong performance was followed by Buy or equivalent ratings from a host of Wall Street firms, including Goldman Sachs, Barclays and Jefferies, hinting of even better days ahead in 2023.

Though a mainstay of the oil and gas industry, it’s important to point out that this isn’t an explorer drilling for crude oil. Rather ENB is an energy infrastructure MLP, or master limited partnership. Dividend yields represent the trailing 12-month yield, which is a standard measure for equity funds.

Many economists believe that the nation’s overall housing supply remains limited so prices for real estate will stay elevated as the sector is focused on quality over quantity. That could bode well for PennyMac as it may not be swamped with buyers, but it can depend on high-quality and high-margin loans as rates stay high. At present, AMG is one of the top 10 publicly traded asset managers with a massive portfolio of $650 billion collectively under management. Historically, solar stocks have experienced plenty of ups and downs. That’s not just because of the challenge with demand and adoption trends, but also because of more practical concerns like supply-chain disruptions and input costs that are important for any manufacturer. But with shares of FSLR stock doubling over the last 12 months, including a run of more than 40% in the last three months alone, it’s hard to argue that the sun isn’t shining on the sector right now.

Interest rates on other types of financing like credit cards, car loans and payday loans also increase. The Charles Schwab Corporation provides a full range of brokerage, banking and financial advisory services through its operating subsidiaries. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. , offers investment services and products, including Schwab brokerage accounts.

In fact, revenue is predicted to roll back in the year ahead thanks to moderation in housing. And as interest rates rise, the firm can command bigger margins from homebuyers as a result. This sector tends to have above-average performance during inflation and increasing rates, thanks to higher oil prices. If a REIT has a high debt load, then profits could decrease since financing costs are much higher. Healthcare REITs are more stable since healthcare facilities are usually in demand, unlike other real estate sub niches such as office buildings and retail centers that are more susceptible to cyclical downturns.

When the economy is improving and people are able to spend more money, inflation can be a driver of higher interest rates. Additionally, the 10-year Treasury note is likely to see a higher yield, which is another sign that there is more money in economic circulation. When the economy goes through periods of boom and bust, interest rates also rise and fall. The Federal Reserve often drives rates, as they can raise or lower rates to stimulate economic growth.

When investing defensively, you may want to consider stock sectors that do well in all markets, like consumer staples, healthcare, and gold. One balanced approach when interest rates are rising is to stay invested and take advantage of late-stage positive momentum, but you should also prepare for harder times that are lurking around the corner. Take a look at the best stock funds and stock sectors when interest rates go up. Financials tend to perform strongly in a rising interest rate environment . Investors could see solid returns in defensive sectors as investors look to allocate their gains in sectors that are generally considered stable during market downturns. Finally, the industrials sector also benefits from the economic health dividend that can be indicated by rising rates.

The best time to invest in growth stocks is when the market has momentum and during the latter stages of an economic cycle. The two factors that can make or break real estate investments during this time are debt profiles and industry. Information Technology is a high-growth sector with little direct exposure to interest rates—rather, it’s driven more by business investment. That said, the sector typically performs well in the early months of a rate-hike cycle before higher rates have had time to cool things down.

Should I invest in bond funds when interest rates are rising?

This brings the range for their target federal funds to 2.25% to 2.5%. If you choose to invest in mutual funds when rates are rising, you have to know which mutual fund categories can work for you. Browse real estate investments with Benzinga’s Offering Screener based on your investment criteria. With the rise of new technology and investments, it’s never been easier to invest in real estate. Insurance companies can also perform well since they can earn higher yields on their bond investments.

short term

With record inflation, the Federal Reserve has drastically raised interest rates from 0.25% to 1.75% over the course of the year. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone.

Best Stock Sectors for Rising Interest Rates

Furthermore, if the higher rates slow down the economy, banks may be less willing to make loans to certain borrowers out of concerns about rising default risks. Companies in the financial sector can benefit from higher rates, which boost earnings for banks or life insurers. But PFG is separate from similar names on this list because it has bigger scale and more stable operations.


However, with more money in the marketplace and more consumers more comfortable with their finances, sectors dealing with staples can also do well. Hygiene products, household goods, and food all benefit when consumers feel more confident. You’re also likely to see more entertainment in an environment like this. Most recently in July, amidst fears of inflation and recession, the Federal Reserve announced an aggressive rate hike of 0.75 percentage points for the second consecutive time.

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In January, positive analyst reports dropped from Susquehanna, Deutsche Bank and KeyBanc, indicating Wall Street maintains its optimism for the foreseeable future. And speaking of looking ahead, fiscal 2023 forecasts for this solar giant include nearly 30% revenue expansion on the year. For investors worried about how to navigate rising rates and related challenges in the stock market, FSLR may be one of the best growth stocks to consider. Bond Investors — Likewise, bond investors can see potential benefits as rates rise. Bond funds and individual bonds tend to see higher yields, and that gives you a chance to invest and see a better return on some of your income-producing assets. Whether that money is from a stimulus from the government or from economic growth in general, an increase in money moving through the economy can lead to inflation and higher rates.

These Sectors Benefit From Rising Interest Rates

Like other industries on this list, healthcare is recession resistant and will probably always be in demand. Most consumers would reduce other discretionary expenses before healthcare costs, giving this sector an edge during rising inflation. But, higher rates can lead to increased borrowing costs for real estate funds. Financial services, which can include banks, insurance firms and brokerage companies, is one of the key industries that benefits from a sharp rise in interest rates. Commodity‐related products, including futures, carry a high level of risk and are not suitable for all investors.

Who’s at Risk From an Interest Rate Rise?

The financial sector consists of companies that provide financial services to commercial and retail clients. Raising interest rates leads to higher borrowing costs, which can lead to a slowdown of growth, which in turn helps to control inflation. Financials benefit from higher rates through increased profit margins.

When interest rates rise, there are ripple effects in the broader economy. They affect stock prices because the cost of lending goes up, which drives down business growth and expansion. Rate hikes also drive investors toward investments with lower interest rates and a guarantee of delivering returns, which reduces demand for stocks and pushes prices down. Financials tends to profit from rising interest rates as banks and other lenders raise rates on borrowers.

When creating your portfolio strategy, it makes sense to consider what sectors are affected by interest rates and to consider how that might impact your performance. Consider consulting with an investment professional before making changes to your portfolio based on concerns about rising interest rates. On its second-quarter earnings call, Unum CFO Steve Zabel said the company began to see portfolio yields stabilize after years of decline due to ultra-low interest rates. Its yield on new investments in the second quarter jumped to 4.8%, up from 3.2% during the same quarter last year.

This diversified operation has helped MCK stock largely sidestep any of the broader disruptions we’ve seen in the economy related to commodity inflation and rising interest rates. The services it provides, including software for pharmacies to help manage prescriptions and the regular delivery of gloves, bandages and other staples to medical offices, have incredibly reliable sales and profits. The developments related to interest rate changes require close attention from investors.

These companies usually invest in safe, reliable bonds to earn steady income that backs the insurance policies that they write. Energy stocks are supported by higher oil prices—which help drive up inflation, a key factor in the Fed’s interest rate policy. The price of oil—the primary driver of its performance—is fickle and prone to unpredictable geopolitics. In March, the Federal Reserve set into motion a cycle of rate hikes that could last well into 2023.

Companies to keep an eye on during interest rate increases include appliance maker Whirlpool Corp. and retailers Kohl’s Corp., Costco Wholesale Corp., and Home Depot, Inc. Some sectors within the stock market are more sensitive to changes in interest rates compared to others. Life insurers are highly sensitive to changes in interest rates — which is likely why companies in this industry performed well during a time when most other companies are getting crushed. Since the start of the year, Unum Group stock is up an impressive 87%, while Aflac is up 11.3%. Higher interest rates help these companies, which can now invest premiums and generate higher returns, putting them in a better position to offer products to their customers with more attractive guarantees.

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