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Oct. 11, 2018, 7:30 a.m. EDT

Mild, medium or spicy? 9 winning investment strategies as interest rates rise

Bonds, stocks and more ways to play this new investing environment

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By Jeff Reeves, MarketWatch


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Higher interest rates are finally here, and many investors are scrambling to figure out what to do.

After the Federal Reserve raised rates in September to a range of 2.0% to 2.25%, we’ve seen some serious changes in the investing landscape. The rate on the 10-year Treasury /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +1.08% hit a seven-year high of 3.25% this week, and the S&P 500 /zigman2/quotes/210599714/realtime SPX -1.51% has been falling for much of this month.

Read: The Titanic as ‘an iceberg loomed’ is how Guggenheim’s Minerd thinks of today’s stock market

While it’s important to keep a long-term perspective with your investments and not make hasty decisions, certain strategies are better suited for a rising rate regime than others. Whether your taste in risk runs spicy, medium or mild, these are some trades to consider:

Spicy

3X Inverse Treasury Bonds ETF

When interest rates go up, bond prices go down. So why not bet big on this fundamental truth with Direxion Daily 20+ Year Treasury Bear ETF /zigman2/quotes/204339773/composite TMV +3.77% ? The fund seeks to generate three times the opposite daily movement of long-term U.S. government bonds. That’s great if rates rise and bond prices fall — this fund up over 15% in the last 30 days — but obviously will be not so hot if rates falter and bond prices rise once more.

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An inverse real-estate fund

A more indirect way to profit from the pain caused by higher rates is through the Pro Shares Short Real Estate ETF /zigman2/quotes/206713669/composite REK -0.97% . This fund moves in the opposite direction of the Dow Jones U.S. Real Estate Index, an index that includes residential plays such as AvalonBay Communities /zigman2/quotes/201241431/composite AVB +1.48%  as well as commercial real-estate plays like mall operator Simon Property Group /zigman2/quotes/209746667/composite SPG +0.70% . Higher rates mean higher borrowing costs, which could impact demand and occupancy across all real estate segments.

Big Tech

Of course, one segment of the market that quite literally never needs to borrow is Big Tech. As of its last quarterly report , Apple Inc. /zigman2/quotes/202934861/composite AAPL -3.00% had $71 billion in cash and $172 billion in long-term investments. Microsoft /zigman2/quotes/207732364/composite MSFT -1.94% posted $133 billion in cash and equivalents. Sure, there’s volatility in the sector right now, but it may be wise to make bargain buys in behemoths with deep pockets.

Medium

Gold

The fact that gold investments like the popular SPDR Gold Shares ETF /zigman2/quotes/200593176/composite GLD +0.0065%  tends to rise during periods of inflation hints that this could be a wise investment in times of rising rates, too. After all, rate hikes are normally driven by fears of inflationary pressures. Similarly, gold is an asset largely uncorrelated to stocks so it could give you a place to hide from market volatility or interest-rate risks. Just remember that gold is not a bulletproof investment either, and can come with extreme volatility of its own — particularly if conditions change.

/zigman2/quotes/211347051/realtime
add Add to watchlist BX:TMUBMUSD10Y
BX : Tullett Prebon
3.83
+0.04 +1.08%
Volume: 0.00
Sept. 30, 2022 4:58p
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/zigman2/quotes/210599714/realtime
US : S&P US
3,585.62
-54.85 -1.51%
Volume: 2.22B
Sept. 30, 2022 5:55p
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/zigman2/quotes/204339773/composite
US : U.S.: NYSE Arca
$ 133.65
+4.85 +3.77%
Volume: 666,943
Sept. 30, 2022 4:00p
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/zigman2/quotes/206713669/composite
US : U.S.: NYSE Arca
$ 21.45
-0.21 -0.97%
Volume: 133,901
Sept. 30, 2022 4:00p
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/zigman2/quotes/201241431/composite
US : U.S.: NYSE
$ 184.19
+2.69 +1.48%
Volume: 1.12M
Sept. 30, 2022 4:03p
P/E Ratio
31.64
Dividend Yield
3.45%
Market Cap
$25.76 billion
Rev. per Employee
$843,539
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/zigman2/quotes/209746667/composite
US : U.S.: NYSE
$ 89.75
+0.62 +0.70%
Volume: 3.00M
Sept. 30, 2022 4:00p
P/E Ratio
14.30
Dividend Yield
7.80%
Market Cap
$33.63 billion
Rev. per Employee
$1.58M
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/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 138.20
-4.28 -3.00%
Volume: 124.93M
Sept. 30, 2022 4:00p
P/E Ratio
22.84
Dividend Yield
0.67%
Market Cap
$2220.98 billion
Rev. per Employee
$2.52M
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/zigman2/quotes/207732364/composite
US : U.S.: Nasdaq
$ 232.90
-4.60 -1.94%
Volume: 35.69M
Sept. 30, 2022 4:00p
P/E Ratio
24.15
Dividend Yield
1.17%
Market Cap
$1736.94 billion
Rev. per Employee
$897,149
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/zigman2/quotes/200593176/composite
US : U.S.: NYSE Arca
$ 154.67
+0.01 +0.0065%
Volume: 6.83M
Sept. 30, 2022 4:00p
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