In this article, we discuss the 10 stocks that benefit from interest rate hikes. If you want to read about some more rate hike stocks, go directly to 5 Stocks That Benefit From Interest Rate Hikes.
Central banks around the world are hiking interest rates as inflation continues to soar. A new study by the World Bank shows that this rise in rates could lead to a recession in 2023. This recession, per the bank, would lead to a string of financial crises in emerging markets and developing economies that would do them lasting harm. The study reveals that investors around the globe expect central banks to raise global monetary-policy rates to almost 4% through 2023. This represents an increase of more than 2 percentage points over their 2021 average.
Some of the stocks expected to benefit from the rising rates include finance giants like Berkshire Hathaway Inc. (NYSE:BRK-B), JPMorgan Chase & Co. (NYSE:JPM), and Citigroup Inc. (NYSE:C). Even though there are signs that supply disruptions and labor market pressures, a legacy of the pandemic, are starting to ease up, the pace at which this change is taking place has left investors worried about the near-term future of the global economy and recession fears are fast spreading to Europe and Asia from the United States.
Per the World Bank, the global core inflation rate is expected to be at about 5% in 2023. This is nearly double the five-year average before the pandemic. In order to keep this inflation rate under check, central banks need to raise rates by 2 percentage points, an increase that could cut the global Gross Domestic Product (GDP) growth to 0.5% in 2023. This forecast represents a 0.4% contraction in per–capita terms. The prediction also meets the technical definition of a global recession.
Our Methodology
The companies that tend to benefit from a rise in interest rates were selected for the list. In order to provide readers with some context for their investment choices, the business fundamentals and analyst ratings for the stocks are also discussed. A database of around 900 elite hedge funds tracked by Insider Monkey in the second quarter of 2022 was used to quantify the popularity of each stock in the hedge fund universe.
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Stocks That Benefit From Interest Rate Hikes
10. SVB Financial Group (NASDAQ:SIVB)
Number of Hedge Fund Holders: 31
SVB Financial Group (NASDAQ:SIVB) is a diversified financial services company, offering various banking and financial products and services. On July 21, the company posted earnings for the second quarter of 2022, reporting earnings per share of $5.60, missing market estimates by $2.08. The revenue over the period was $1.5 billion, up over 2% compared to the revenue over the same period last year and missing analyst estimates by $130 million. The firm said the net interest margin for the fiscal 2022 would be in the range of 2.15%-2.25% against estimates of 2.10%-2.20% previously. SVB Financial Group (NASDAQ:SIVB) is one of the stocks that can benefit from interest rate hikes.
On September 14, Truist analyst Jennifer Demb maintained a Buy rating on SVB Financial Group (NASDAQ:SIVB) stock and lowered the price target to $478 from $500, noting the change reflected higher net interest margins and lower credit costs over the near term.
At the end of the second quarter of 2022, 31 hedge funds in the database of Insider Monkey held stakes worth $626 million in SVB Financial Group (NASDAQ:SIVB), compared to 34 in the previous quarter worth $848.8 million.
Just like Berkshire Hathaway Inc. (NYSE:BRK-B), JPMorgan Chase & Co. (NYSE:JPM), and Citigroup Inc. (NYSE:C), SVB Financial Group (NASDAQ:SIVB) is one of the stocks that elite investors are flocking to as interest rates rise.
In its Q1 2022 investor letter, Diamond Hill Capital, an asset management firm, highlighted a few stocks and SVB Financial Group (NASDAQ:SIVB) was one of them. Here is what the fund said:
“Other bottom contributors included SVB Financial Group (NASDAQ:SIVB). Innovation-economy focused bank SVB Financial Group was doubly punished as financials traded down and the sell-off in technology raised concerns about slower growth for this niche bank in the near term.”
9. Chubb Limited (NYSE:CB)
Number of Hedge Fund Holders: 35
Chubb Limited (NYSE:CB) provides insurance and reinsurance products worldwide. The company has an impressive dividend profile. It has consistently paid a dividend to shareholders for the past twenty-six years. These payouts have also registered uninterrupted growth in the past six years. The sector median in this regard is just two years, attesting to the solidity of the business model of the firm compared to peers. On August 11, the firm declared a quarterly dividend of $0.83 per share, in line with previous.
On July 12, Jefferies analyst Yaron Kinar maintained a Buy rating on Chubb Limited (NYSE:CB) stock and lowered the price target to $244 from $247, noting that the macro economic slowdown had led to decreasing forward estimates for the firm.
At the end of the second quarter of 2022, 35 hedge funds in the database of Insider Monkey held stakes worth $1.7 billion in Chubb Limited (NYSE:CB), compared to 31 in the preceding quarter worth $1.8 billion. Chubb Limited (NYSE:CB) is one of the best stocks to consider as it benefits from higher interest rates.
In its Q1 2022 investor letter, Aristotle Capital Management, an asset management firm, highlighted a few stocks and Chubb Limited (NYSE:CB) was one of them. Here is what the fund said:
“Our investment in Chubb began in the fourth quarter of 2015, shortly after ACE Limited announced it would acquire the Chubb Corporation, creating the largest global property and casualty insurance company by underwriting income. During our nearly seven-year holding period, the company’s combination progressed leading to the realization of main catalysts we had identified. These included cost savings, broadened product offerings and an expanded customer base, as well as enhanced distribution capabilities and improved pricing due to scale. In addition, Chubb successfully grew its profitable high-net-worth personal lines. While we still consider Chubb to be a high-quality business, few catalysts remain after what was, in our opinion, a remarkable run of successful business execution. As such, we decided to step aside in favor of what we believe to be a more optimal investment in Blackstone.”
8. PNC Financial Services Group, Inc. (NYSE:PNC)
Number of Hedge Fund Holders: 42
PNC Financial Services Group, Inc. (NYSE:PNC) operates as a diversified financial services company in the United States. In late June, the company announced that it had passed a stress test undertaken by authorities in the United States. Other firms that passed the test included peers like Fifth Third Bancorp and Huntington Bancshares. PNC also revealed that it would be subject to a stress capital buffer of 2.9% for the fourth quarter beginning in early October, compared to a stress capital buffer of 2.5% for the same period last year.
On September 12, Deutsche Bank analyst Matt O’Connor maintained a Hold rating on PNC Financial Services Group, Inc. (NYSE:PNC) stock and lowered the price target to $200 from $215, noting that banks had underperformed due to recession fears but had long-term potential.
At the end of the second quarter of 2022, 42 hedge funds in the database of Insider Monkey held stakes worth $593 million in PNC Financial Services Group, Inc. (NYSE:PNC), compared to 49 the preceding quarter worth $1.5 billion.
7. BlackRock, Inc (NYSE:BLK)
Number of Hedge Fund Holders: 50
BlackRock, Inc (NYSE:BLK) is a publicly owned investment management firm. On September 9, the company announced that the board for the BlackRock Income Trust had approved a 1-for-3 reverse stock split of the common stock of the closed ended fixed income mutual fund. The firm said that the fixed monthly distribution of the fund would thus be adjusted to $0.0882 per share from $0.0294, starting with the first distribution to be declared following the effective date of the reverse stock split.
On August 12, Deutsche Bank analyst Brian Bedell kept a Buy rating on BlackRock, Inc (NYSE:BLK) stock and raised the price target to $869 from $720, noting that there was a mostly upward bias in the shares given the equity market.
Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Harris Associates is a leading shareholder in BlackRock, Inc (NYSE:BLK), with 902,958 shares worth more than $549.9 million.
In its Q1 2022 investor letter, Carillon Tower Advisers, an asset management firm, highlighted a few stocks and BlackRock, Inc (NYSE:BLK) was one of them. Here is what the fund said:
“BlackRock (NYSE:BLK) shares underperformed due to a decline in equity market performance. As a reminder, market weakness typically drives assets under management lower, which in turn leads to lower revenues.”
6. Morgan Stanley (NYSE:MS)
Number of Hedge Fund Holders: 58
Morgan Stanley (NYSE:MS) provides various financial products and services to corporations, governments, financial institutions, and individuals. In mid-August, regulatory filings by the bank revealed that it was planning to enter the exchange traded fund marketplace. The ETF marketplace has exploded in popularity over the past few years as stocks become more volatile. Estimates suggest that the ETF market is now worth close to $7 trillion. The new planned funds include the Calvert International Responsible Index ETF, the Calvert US Large-Cap Core Responsible Index ETF, and the Calvert US Large-Cap Diversity. It is also one of the most notable stocks set to benefit from interest rate hikes.
On September 16, investment advisory Deutsche Bank kept a Hold rating on Morgan Stanley (NYSE:MS) stock and lowered the price target to $92 from $105. Analyst Matt O’Connor issued the ratings update.
At the end of the second quarter of 2022, 58 hedge funds in the database of Insider Monkey held stakes worth $2.99 billion in Morgan Stanley (NYSE:MS), compared to 61 in the previous quarter worth $3.3 billion.
In addition to Berkshire Hathaway Inc. (NYSE:BRK-B), JPMorgan Chase & Co. (NYSE:JPM), and Citigroup Inc. (NYSE:C), Morgan Stanley (NYSE:MS) is one of the stocks that hedge funds are buying as interest rates rise.
In its Q2 2022 investor letter, Sound Shore Management, an asset management firm, highlighted a few stocks and Morgan Stanley (NYSE:MS) was one of them. Here is what the fund said:
“Morgan Stanley (NYSE:MS) is a long term holding, retreated despite having business models that are more resilient, over-capitalized and underappreciated by the market. In June, the Federal Reserve’s stress tests again blessed the health of the overall banking system. Morgan Stanley stood out with an 11% increase in its annual dividend, yielding 4.1% at quarter’s end.”
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Disclosure. None. 10 Stocks That Benefit From Interest Rate Hikes is originally published on Insider Monkey.