After a prolonged run of easing speculation, the interest rate outlook has taken a shift. Back in September, the Federal Reserve increased rates by 25 basis points, and economists are now anticipating another rate hike in December, according to a recent Reuters poll. Bond markets have already reacted to yield curve changes, as the 10-year Treasury yield jumped from 3.97% in February 2026 to 5.31% during the first week of October. It came down to 4.98% by the end of October. Fed’s preferred inflation metric, Core PCE, went up by 0.3% during September to its highest reading in a year. Do check Insider Monkey’s list of 10 Stocks Analysts Just Downgraded.
Market participants see this as an uncomfortable mix. Elevated interest rates increase the discount rate on projected earnings, which adversely affects the richly valued growth names. They also take a toll on highly leveraged businesses and make bond-like stocks such as utilities and REITs appear less attractive. We recently provided an expanded list of 10 Buy the Dip Stocks Insiders Are Loading Up On After the Recent Market Sell-Off.
But tightening cycles do not necessarily bring bad news for all businesses. Some segments benefit as rates climb, while others carry strong pricing power and balance sheet strength to navigate through them. Insurance players can reinvest their float at relatively higher yields, as indicated by the CEO of the largest P&C insurance company in the world in October, who highlighted a direct correlation between operating income and rising rates.
Similarly, banks have the opportunity to widen the gap between what they earn on loans and what they pay on deposits. With that backdrop, let’s explore our 10 Best Stocks to Buy for a Rising Interest Rate Environment.
Methodology:
To identify relevant stocks for this article, we screened U.S.-listed companies that the financial media have tied to the prevailing interest rate backdrop. Also, we only shortlisted stocks with market capitalizations above $2 billion and at least 15% upside potential as of the November 10 closing. From that list, we selected 10 stocks with the most hedge fund investors, using Insider Monkey’s Q2 2026 hedge funds database. Finally, we ranked them in ascending order of the number of hedge fund holders.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Insider Monkey’s quarterly newsletter strategy selects 14 small-cap and large-cap stocks every quarter and has returned 612% since May 2014, beating its benchmark by 375 percentage points (see more details here).
10. Affiliated Managers Group Inc. (NYSE:AMG)
Number of Hedge Fund Holders: 42
The asset manager partners with a global network of independent investment firms, acting as a long-term strategic equity investor delivering a broad array of investment strategies. Along with its alternative fund affiliates, it often holds a significant amount of cash proceeds, short-term instruments, and reserves, which yield higher interest income when short-term rates go up.
A high interest rate environment also benefits AMG through more favorable valuation multiples, which allows it to invest across new credit-focused and alternative partner firms. Here is how Ariel Investments reflected on Affiliated Managers Group, in its “Ariel Focus Fund” investor letter for the second quarter of 2026.
Bulls point to the company’s robust free cash flow generation capacity, a lucrative valuation compared to the underlying earnings growth, aggressive share repurchases, and a pivot toward high-fee alternative strategies. However, it faces continued headwinds across its traditional equity strategies. Earnings concentration is an added worry for investors, with significant reliance on a few major affiliates such as Pantheon and AQR.
With 2.77 million shares, BlackRock is the largest institutional investor, owning 10.72% of the outstanding shares. Other notable institutional names include Morgan Stanley and Vanguard Portfolio Management, which held 5.75% and 5.38% of outstanding shares, respectively.
9. Fair Isaac Corp. (NYSE:FICO)
Number of Hedge Fund Holders: 50
With a market capitalization of close to $ 15.5 billion, Fair Isaac Corp. (NYSE:FICO) is expected to witness potentially lower mortgage originations and refinancing volume due to rate hikes. However, it would benefit from more prudent credit management as the focus on creditworthiness and credit scores increases in such an environment.
The company’s regulatory moat within the US mortgage credit scoring space weakened back in early September, as the Federal Housing Finance Agency (FHFA) ended a limited pilot program by instructing Fannie Mae and Freddie Mac to accept VantageScore 4.0 from approved mortgage lenders.
However, it still made our recent list of 10 Best 52-Week Low Technology Stocks to Buy According to Analysts, ranking #4. FICO scores continue to be the industry benchmark for loan approvals and creditworthiness investigations. This results in a deep economic moat for the business, making its core operations highly resilient to economic cycles given lenders’ reliance on credit risk metrics.
BlackRock is the largest institutional stakeholder in the company, as per the Yahoo Finance database, holding 2.09 million shares. This translates into 9.66% ownership in the company. Other notable stakeholders include Vanguard Capital Management and Capital Research Global Investors with 6.84% and 6.00% ownership, respectively.
8. Unum Group (NYSE:UNM)
Number of Hedge Fund Holders: 51
Unum Group (NYSE:UNM) offers employee benefits and workplace protection across the U.S., UK, and Poland. The company bags in insurance premiums and reinvests the cash proceeds into fixed-income bonds, which enables it to earn higher reinvestment yields as rates go up. Its effective asset-liability matching and fixed-income portfolio have positioned it to benefit from higher short-term rates.
Rate hikes also bode well for Unum by easing pressure on its closed blocks of business operations like the LTCI insurance. It was part of Insider Monkey’s list of stocks that recently got upgraded by analysts, after being upgraded from Neutral to Overweight by JPMorgan on November 9.
The company faced a steep earnings selloff during the third quarter of fiscal 2026. Underlying margin compression appears to be structural rather than a temporary hiccup, as per the skeptics. Bears are also reflecting on Unum’s legacy LTC liabilities, earnings fluctuations, and deterioration of its core disability underwriting margins.
BlackRock is the largest institutional stakeholder, as per the Yahoo Finance database, holding 17.99 million shares as of June 30. This amounts to 11.61% of outstanding shares. Other notable institutional investors include Norges Bank and Vanguard Portfolio Management, holding 8.55% and 5.54% of outstanding shares, respectively.
7. PNC Financial Services Group Inc. (NYSE:PNC)
Number of Hedge Fund Holders: 59
PNC Financial Services Group Inc. (NYSE:PNC) primarily benefits from rising interest rates by locking in higher asset yields on its commercial lending products and variable-rate loans. PNC delivered an impressive loan book expansion and net interest income growth during Q3 fiscal 2026, and the stock’s current valuation appears compelling.
With a market capitalization of nearly $92 billion, it trades at a modest trailing earnings multiple of 12.3x, below the 5-year median of 12.8x. Moreover, its forward price-to-earnings multiple of 10.7x indicates an earnings yield of around 9.4%. Management has acknowledged that a steeper yield curve favors the company, as it increases the spread between the longer-term asset returns and short-term funding costs. This boosts profitability for the business across later cycles.
There is some level of investor pessimism regarding PNC’s credit quality, as the company has witnessed an upward trend in its non-performing loans. With a total debt balance of close to $45.3 billion, it carries a high-debt structure, and its Common Equity Tier 1 (CET1) ratio sits just below the 10% internal target.
With 32.17 million shares, BlackRock is the largest institutional investor, owning 8.11% of the outstanding shares.
6. Devon Energy Corp. (NYSE:DVN)
Number of Hedge Fund Holders: 82
Devon Energy Corp. (NYSE:DVN) currently trades at an attractive trailing P/E ratio of 9.9x, valued at a notable discount to the larger peers across the oil and gas exploration and production segment. At a market capitalization of more than $48 billion, its forward earnings multiple stands lower at 7.77, implying earnings to grow by more than 28% over the coming year. It is expected to benefit from rate hikes amid the commodity price correlation, as tighter energy supply would result in higher prices for crude oil and natural gas. However, it is important to keep in mind that Devon Energy operates in a cyclical business and a potential decline in global energy prices could seriously hurt its earnings.
Devon ranked #3 in Insider Monkey’s list of 10 Activist Target Stocks with High Cash and Low Valuation. The company has been urged by activist investors to streamline its portfolio by selling its non-core oil and gas assets. The management has been encouraged to focus on unlocking shareholder value and enhance its capital allocation strategy.
Integration complexities, commodity price fluctuations, and liquidity concerns lie at the center of Devon’s bear case. Topline and cash flow generation capacity are closely tied to natural gas and crude oil market dynamics. Any shift in the US-Iran war situation, OPEC+ policies, or a global economic slowdown could adversely affect margins. This would have significant implications for the company’s payouts and share repurchases.
5. Caterpillar Inc. (NYSE:CAT)
Number of Hedge Fund Holders: 84
Caterpillar Inc. (NYSE:CAT) was one of the names that held up through the last interest rate hiking cycle back in 2022–23. The stock delivered more than a 41% return between February 2022 and July 2023, indicating that historically it has benefited from a rise in short-term rates. The company’s record $78 billion order backlog, following a 96% year-over-year growth, would offer protection in case new orders decline due to rate hikes. Its financial services arm, Caterpillar Financial Services, would also yield higher spreads through repricing of leases, loans and other financing products.
Following the purchase of 1,000 shares by board member James C. Fish Jr. on November 2, for a total consideration of $620,390, Caterpillar made the list of 10 Buy the Dip Stocks Insiders Are Loading Up On After the Recent Market Sell-Off. The purchase increased his reported position in Caterpillar by almost 27%, which now stands at a total of 4,714 common shares.
The stock trades at inflated valuation multiples. The trailing P/E ratio stands at 23.6x, above the forward multiple of 18.8x, which leaves little room for execution error. Additionally, the company faces overcapacity concerns with its ongoing multi-year manufacturing expansion in power generation equipment.
4. ExxonMobil Holdings Corp. (NYSE:XOM)
Number of Hedge Fund Holders: 96
ExxonMobil Holdings Corp. (NYSE:XOM) is one of the standout names across the energy sector, which tends to outperform the market following an interest rate rise. The underlying inflation-hedging traits and commodity price dynamics would enable the company to overcome demand weakness that accompanies rate hikes. Additionally, its conservative balance sheet insulates its operations from interest rate vulnerabilities. It ranked #2 in Insider Monkey’s recent list of 10 Most Undervalued Dividend Growth Stocks According to Hedge Funds.
The company’s cash flow generation capacity remains notable, as it generated $28.3 billion in levered free cash flow over the last twelve months. Supported by robust cash flows through its upstream and downstream operations, this dividend aristocrat has delivered 43 consecutive years of annual dividend growth. It has a 5-year average dividend yield of 3.34%, and at the prevailing level, it offers a forward yield of 2.60%. Given the volatility in crude oil and commodity prices, the company’s upstream operations remain vulnerable to lower WTI and Brent prices. This has led to concerns around potential deceleration in broader earnings over the coming years.
BlackRock is the largest institutional investor with 334.75 million shares, according to the Yahoo Finance database, representing 8.21% of outstanding shares.
3. Citigroup Inc. (NYSE:C)
Number of Hedge Fund Holders: 102
As a diversified global bank, Citigroup Inc. (NYSE:C) leverages wider spreads between the rates it charges on lending and the ones it pays on deposits. A jump in benchmark rates enables the bank to reprice its new loans and floating-rate assets more rapidly compared to adjustments in deposit costs. This expands the bank’s net interest margins.
Citigroup’s cash management and institutional functions, including its Services and Treasury operations, benefit from rate hikes. This is due to elevated yields on its float income and cash, along with a higher level of client activity across corporate liquidity management. It was amongst the top banking names according to billionaires, ranking #5 in the list.
Apart from the loan hedges, overall corporate lending revenues have faced compression, exhibiting sequential and annual decline. This can be attributed to weaker loan spreads that have outweighed Citigroup’s higher loan balances. With an increase in credit card rewards and partner payment accruals, non-interest income has also contracted sharply, fueling skepticism among investors.
BlackRock is the largest institutional investor with 149.51 million shares, according to the Yahoo Finance database, representing 8.77% of outstanding shares. Other notable institutional names include Vanguard Capital Management and State Street Corporation, which hold 6.29% and 4.57% of outstanding shares, respectively.
2. Bank of America Corp. (NYSE:BAC)
Number of Hedge Fund Holders: 111
Bank of America Corp. (NYSE:BAC) is positioned with healthy cash and liquidity reserves, which can be allocated to higher-yielding and shorter-maturity instruments in case the benchmark rates rise. It has been expanding its loan portfolio while enhancing its net interest yield. Its large deposit base offers a low-cost source of funding for the loan portfolio. The stock ranked #5 in our recent list of 10 Best Warren Buffett Stocks with Upside Potential.
Bank of America’s short-term assets and massive loan book benefit from rate hikes as they are repriced upward, resulting in billions of dollars in net interest income. It generated close to $41.4 billion in operating cash flow over the past twelve months. Its common equity tier 1 (CET1) ratio of 10.9% stands well above the minimum regulatory requirements.
That said, Bank of America saw its third-quarter adjusted EPS fall short of expectations, clocking in at $0.91 compared to consensus estimates of $1.10. This came at the back of a $1.2 billion regulatory settlement with the U.S. Treasury Department, in relation to violations of anti-money laundering and the Bank Secrecy Act involving some suspicious transactions. The penalty triggered investor class-action lawsuits and also lowered the adjusted EPS by 17 cents a share.
1. Microsoft Corp. (NASDAQ:MSFT)
Number of Hedge Fund Holders: 273
A rising interest rate environment benefits Microsoft Corp. (NASDAQ:MSFT) primarily due to its capital deployment leverage, a robust balance sheet, and competitive consolidation within the AI infrastructure space. Additionally, rate hikes add to the debt servicing burden for smaller, highly leveraged competitors and neo-cloud operators, which would enable Microsoft to consolidate its market share.
Microsoft’s operating performance remains exceptional. Total revenue over the last twelve months came in at $346.4 billion. Profitability is equally striking as the company has delivered close to a 50% operating margin and more than a 41% profit margin on a trailing basis. This has resulted in healthy returns on capital, with return on equity clocking in at 34.22%, signaling operational efficiencies and durable pricing power for Microsoft. Microsoft has been allocating a substantial amount of capital toward AI capabilities. So how does that make its Azure platform integral to the broader growth narrative?
There are some concerns around the company’s soaring AI capital expenditure, which has taken a notable toll on underlying free cash flows. The Q1 fiscal 2027 free cash flows went down 27% compared to the corresponding period last year, as cash capex saw more than a twofold jump.
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