HQ TrustJune 3 2021

HQ Trust Chart of the Week: Who benefits (and who doesn’t) from rising interest rates?

2 mins read

Written by Sven Lehmann, Portfolio Manager at HQ Trust

To view this article in German on the HQ Trust website please click here – https://www.hqtrust.de/de/artikel/wer-von-steigenden-zinsen-profitiert-und-wer-nicht

In theory, it’s clear which sectors benefit from rising interest rates – and which suffer: Sectors with traditionally high levels of debt see their profits fall more than those with low levels of debt. And banks benefit as interest margins widen. Is it that simple? Sven Lehmann has done the math.

For his latest analysis, the fund manager of HQT Global Quality Dividend determines how 20 Datastream sector indices have performed during a total of twelve interest rate rise periods (eleven completed and the current one) compared to the global DS equity index. The analysis covers the period from 1984 to the present. Click here to view the chart that is being examined this week.

  • “Technology stocks have historically performed best during periods of rising interest rates. While the average gain of 19.2 percent is heavily influenced by the period before the dot-com bubble burst, the sector has outperformed the index in 10 of 12 periods. Otherwise, only the industrial sector managed this.”
  • “Cyclical sectors tended to outperform the overall market: this was the case for automakers as well as industrials and commodity producers.”
  • “Defensive sectors such as utilities, food and healthcare tended to underperform the index: for utilities, this was true for 11 out of 12 periods of rising rates.”
  • “For banks, the result is less clear: There were 6 periods when stocks outperformed the market – and 6 when bank stocks lagged the global DS index.”
  • “The statement that sectors with high net debt perform worse than sectors with low cannot be substantiated: The three least indebted sectors are technology (#1), financial services (#10), and consumer products (#17). 

How are sectors doing in the current period of rising interest rates? 

  • “Basically, the order of sectors is the same as historically, though there are high relative differences.”
  • “The strongest outperformers currently include automakers, construction stocks and the travel industry.”
  • “At the bottom of the performance rankings are the defensive sectors of food, consumer products and retail.”

Disclaimer: Investment in the capital markets involves risks and in extreme cases can lead to the loss of the entire capital invested. Past performance is no indicator of future performance. Forecasts are also not a reliable indicator of future performance. The presentation does not constitute investment, legal and/or tax advice. All content on our website is for information purposes only.