Published on 3 Nov 2022 on Zacks via Yahoo Finance

5 ETFs Set to Benefit From Higher Rates

The Federal Reserve, as expected, raised interest rates by 75 bps for the fourth consecutive time. This is the sixth rate hike this year, a streak that has made mortgages and other consumer and business loans increasingly expensive and heightened the risk of a recession.Against this backdrop, many ETFs from various corners of the market are poised to benefit from a rising-rate environment. Some of these, like SPDR S&P Insurance ETF KIE, SPDR S&P Regional Banking ETF KRE, Vanguard Value ETF VTV, JPMorgan Ultra-Short Income ETF JPST and iShares Floating Rate Bond ETF FLOT, seem compelling picks.The rate hike brings the benchmark interest rate, the federal funds rate, to 3.75%-4%, its highest level since 2008. The increase in interest rates has made borrowing expensive, pushed up the cost of buying a new car or house, increased the cost of carrying credit card debt and thus slowed down economic growth (read: Is the Party Over for Housing ETFs?).The central bank also signaled that future increases in borrowing costs could be made in smaller steps to account for the “cumulative tightening of monetary policy” it has enacted so far.

Any Reason to Worry?

Higher rates would attract more capital to the country, thereby boosting the U.S. dollar against the basket of other currencies. However, since a strong dollar should have a huge impact on commodity-linked investments, a rising-rate environment will also hurt a number of segments.In particular, high dividend-paying sectors such as utilities and real estate would be the worst hit, given their higher sensitivity to rising interest rates. Additionally, securities in capital-intensive sectors like telecom would also be impacted by higher rates.