Investors thinking about putting their money to work in a rising rate environment should opt for technology and financial services exchange traded funds, said Heidi Richardson, head of U.S. Investment Strategy for iShares. The long awaited Fed rate hike is now absolutely possible in December, following strong non-farm payroll data last week. The market pricing for a December lift-off jumped up to 70% after the data release, up from 50% several days ago. ‘I don’t think investors should fight the Fed, I think they should embrace it,’ said Richardson. ‘It creates risks in some investments but it also creates great opportunities in both equities and fixed income.’ Richardson said U.S. technology companies may be poised to outperform when rates rise, in large part due to their cash reserves and strong balance sheets. She said the third quarter earnings season has confirmed that the one sector which stands out as a bright spot is technology. ‘Technology is a pro-cyclical sector that stands to benefit from continued economic improvement,’ said Richardson. ‘It also is well positioned for the higher borrowing costs that will result when rates rise due to the non-reliance on debt financing.’ She suggested investors seek out the iShares US Technology ETF (IYW), which is up 4.6% year-to-date compared to a 1% rise in the S&P 500.
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