Where to invest when interest rates are rising?

Investors are looking for a safe haven as central banks raise interest rates to combat rising inflation.

While the Bank of England is expected to raise the Interest Rate from 3 percent to 3.5 percent today, the American Federal Reserve across the Atlantic also raised interest rates by half a percentage point, signaling that more rate hikes are to come.

Rising interest rates are often bad news for investors, as lower consumer spending and rising borrowing costs can have a significant impact on corporate profits.

However, there are some sectors that are looking increasingly attractive as interest rates continue to trend upwards.

Rob Burgeman, wealth manager RBC Brewin Dolphin, said the main beneficiaries of a high Bank Rate are those with large amounts of cash on their balance sheets, such as insurance companies that hold large sums to pay off customer receivables.

Mr Burgeman said: “While they are in a situation where they can earn very little from cash or gilts, they are suddenly looking at a return of 3 percent or more, given recent increases in the Bank of England. All of this, provided everything else is in order and there is no significant external jolt to their balance sheet. should feed the profit margins of insurance companies.”

He said investors looking for an insurance stock to buy should consider Legal & General. With a market capitalization of £15bn, the company is much smaller than its European competitors but is still one of the largest insurers in the UK.

“The share price has fluctuated with market movements in recent years, but the 7 percent dividend yield is ample return for investors,” said Mr. Burgeman. said.

Another option is Prudential, which is traded in the UK but focuses almost entirely on the Asian market, making it an attractive buy for investors seeking exposure to growth in the region. At first glance, Prudential may not seem like a solid investment for income as its dividend yield is currently around 1.3 percent, but Mr. Burgeman said analysts expect it to grow between 8 percent and 13 percent over the next few years. new business focus and leaner setup”.

Investors opting for funds may want to consider Polar Capital Global Insurance, which accounts for 76% of its holdings and focuses heavily on providers from the United States.

However, Mr. Burgeman pointed out that this is a relatively expensive option, as the fund charges 0.75 percent of its annual management fee. “As is typically the case with Polar Capital funds, there are performance fees that anyone investing should be wary of,” he said.

Another sector likely to prove resilient in the face of rising rates and a recessionary environment is healthcare, 8AM Global fund manager Andy Merricks said.

Equity investors can consider UK-traded AstraZeneca and GSK, or European healthcare stocks such as Nordisk. For investors seeking active funding, the Worldwide Healthcare Trust offers exposure to global players in the industry and smaller biotech firms.

Mr Merricks said that if Bank Rate peaks in a few months, investors should always consider a company’s long-term prospects, even in low-interest environments.

Investment bank Deutsche Bank said the Bank Rate could rise as high as 4.5 percent in 2023, but then fall steadily towards the end of the year.

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