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Ride Rising Rates with the Broker-Dealers ETF

Many have modified fixed-income positions in response to interest rates changes, but investors can also look at the broker exchange traded fund to ride rising rates.

According to S&P Capital IQ analyst Ken Leon, broker-dealers, firms that engage in buying and selling securities or operating as both a broker and dealer, are better suited to withstand rising interest rates than other financial picks, reports Kaitlin Pitsker for Kiplinger.

Brokerage stocks are sensitive to interest rate movements – low rates have diminished fees on money market funds, which play a significant role in their bottom line.

Additionally, brokerage stocks have also outperformed in a bull market. As share prices rise, investors tend to trade more, bolstering brokers’ revenues.

Meanwhile, greater economic activity could entice more merger and acquisition activity, which would help investment banks.

The iShares U.S. Broker Dealers ETF (IAI) tracks a basket of brokers and investment banks. IAI has a 0.46% expense ratio.

The fund has 23 components, and the top holdings include Goldman Sachs (GS) 7.7%, Morgan Stanley (MS) 6.9% and CME Group (CME) 6.6%.

IAI has gained 38.8% year-to-date.

iShares U.S. Broker Dealers ETF

For more information on this segment of the financial sector, visit our broker-dealers category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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