Money As interest rates rise, shore up your portfolio with these financials stocks

22:56  16 april  2018
22:56  16 april  2018 Source:   The Motley Fool

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The latest markets news, real time quotes, financials and more. Watchlist. Track stocks and ETFs. This article explores some of the basic, time-tested strategies that any investor or trader can use to profit in a rising interest rate environment.

There is also a widespread sense that these rising interest rates will usher in a bear market for bonds. What to Do When Interest Rates Go Up . Big rate gyrations, in both the short and long-term, can significantly impact the balance in your portfolio .

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With interest rates widely expected to continue to rise, investors would be well advised to think about positioning their portfolios in such a manner as to benefit from this undeniable trend.

Despite record consumer debts and very shaky housing markets, unemployment remains at 40-year lows, and inflation is creeping up to the Bank of Canada’s target 2% rate — signaling that all is well with the economy and that rates need to rise further, moving us into an environment of monetary tightening, as opposed to the monetary-easing environment that has worked so well to get us to where we are today.

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While rising interest rates in general hurt stocks , some stock groups may benefit. Financials . Financial companies are likely to benefit from rising interest rates because their net interest margins — the difference How biased is your news source? You probably won’t agree with this chart.

With interest rates on the rise and expected to rise further, now may be a good time to start thinking about tweaking your portfolio . But it is OK to pare these holdings back as interest rates rise . Sign Up . Thank you!

Considering this change, where are the best places for investors to turn?

These four financial stocks are set to benefit in this new environment, and therefore it is a good idea to bulk up on these names.

Toronto-Dominion Bank (TSX:TD)(NYSE:TD)

With $1.2 billion in total assets, TD is currently Canada’s biggest bank, with the most assets and the second-most deposits.

The stock has been a good place to turn to for dividend yield and dividend growth, and since 1995, the bank’s dividend has grown at an annualized rate of 11%.

The stock has also done really well, and has appreciated 24% in the last three years, despite the recent pullback from its highs due to lingering questions regarding the bank’s sales practices.

Nevertheless, on a macro level, TD will benefit from a rising interest rate environment, as it will certainly boost the bank’s numbers, as the interest rates charged on loans will rise, bringing more profit to the bottom line.

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Should I consider adding more dividend-paying stocks to my portfolio ? How could a potential rise in interest rates affect the bonds I'm holding? When interest rates go up , bond prices typically drop, and vice versa.

A Bond-Fund ETF That Should Hold Up Well as Interest Rates Rise . These junk- rated borrowers are charged “floating” interest rates that are typically tied to a short-term benchmark: the London Interbank Offered Rate , or LIBOR. See Also: 4 High-Yielding Utilities Stocks for Dividend Investors.

As an offset, higher provisions for credit losses are also in the cards.

TD is currently yielding 3.85%.

Manulife Financial Corporation (TSX:MFC)(NYSE:MFC)

Being an insurance company, Manulife will also benefit from rising interest rates, and although the stock has fallen so far this year, further interest rate hikes will boost the company’s results.

The company is currently seeing strong growth in Asia, and we can expect continued efficiency improvements in 2018.

Manulife expects solid performance in its wealth management segment, where the Standard Life and the New York retirement plan acquisitions will help to boost its position and growth going forward.

Manulife is currently yielding 3.73%.

Industrial Alliance Insur. & Fin. Ser. (TSX:IAG)

With a primary focus on the Canadian market, Industrial Alliance stands to gain the most of its peer group from rising interest rates. The company has disclosed that a 10-basis-point increase in interest rates will impact net income by $15 million.

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One fear is that rising interest rates will hit fast-growing companies harder. In contrast, the second-largest value- stock sector after Financials is Energy, which makes up around 13% of the value index.

But the rock-bottom valuation of this stock makes that performance very much priced into the stock . And broadly, European growth metrics are pointing up . Omega Healthcare. REITs are sensitive to rising interest rates as a group, and many have fallen out of favor lately.

Industrial Alliance currently has a dividend yield of 2.93%.

Intact Financial Corporation (TSX:IFC)

While Intact’s first-quarter results showed higher-than-expected losses, the company remains a high-quality defensive play in the financial industry.

And with the release of fourth-quarter results, the company announced a 9% dividend increase, signifying that management remains confident in the business as well.

With this stock, investors get access to a quality defensive company with a strong track record, good fundamentals, and upside coming from any future acquisitions.

The stock is currently yielding 2.92%.

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Fool contributor Karen Thomas has no position in any of the stocks mentioned. Intact Financial is a recommendation of Stock Advisor Canada.

Growing number of Canadians say they’re feeling the impact of higher interest rates .
Growing number of Canadians say they’re feeling the impact of higher interest ratesTM

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