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Rampant Global Rate Hikes Put Spotlight on These ETFs

Sanghamitra Saha
Advance Auto Parts (AAP) is seeing favorable earnings estimate revision activity and has a positive Zacks Earnings ESP heading into earnings season.

Raising rates has been in practice this year, be it in developed or developing economies. The Fed enacted the third-rate hike of 2018 in September and offered a hawkish guidance for the near term. The central bank plans one more hike this year and maintains its view of three more next year and one in 2020 (read: Top-Performing Fixed-Income ETFs of 1H).

The Fed raised its forecast for real GDP growth from 2.8% in June to 3.1% for 2018 and from 2.4% to 2.5% for 2019. It maintained the 2020 growth forecast at 2.0%. The Fed projected the longer-run growth measure of 1.8%. The central bank issued projections for 2021, which call for economic growth of 1.8%, same as the long-run forecast (read: Fed Hikes Rates as Expected: ETF Areas That Gained).

A few developed economies have also been hiking rates this year. The Norges Bank raised its key policy rate for the first time since 2011, as inflation as well as economic growth picked up (read: Norway Hikes Rate for First Time in 7 Years: ETFs in Focus).

Bank of England lifted interest rates for the second time since the financial crisis in August. The Bank of Canada hiked its key overnight rate by 25 bps to 1.5% in July, the highest since 2008. It was the second hike this year as uptick in inflation and strong economic data overshadowed escalating tariff tensions with the United States. Plus, there is heightened speculation over the European Central Bank’s (ECB) possible announcement of a rate hike next year (read: ECB May Hike Rates After Summer 2019: ETFs to Gain).

Not only developed economies, emerging economies have been hiking rates to keep pace with the Fed and shore up their currency. Bank of Indonesia lifted rates in September for the fifth time since May. The Philippine central bank also raised its key rate in late September by half a percentage point to check inflation.

Turkish central bank has hiked rates in order to shore up the tumbling currency several times this year. In September, the Central Bank of Turkey raised its benchmark interest rate by 625 bps to 24% on Sep 13, beating market expectations of a 425-bp hike. India lifted rates twice this year to 6.50%.

In short, hiking rates has been a trend in the global market this year. As a result, Euro zone benchmark German bond yields are near a four-month high. And in a growing economy, most sectors surge from a wealth effect, with a few of the more corners making the most of this run-up.

iShares Global Financials ETF IXG

The underlying S&P Global 1200 Financials Sector Index looks to track the performance of the financial companies. The fund has 47.24% weight in the United States followed by 7.67% in Canada. Banks hold 53.10% of the fund. Berkshire Hathaway Inc Class B (6.03%), J P Morgan Chase & Co. (5.48%) and Bank of America Corp (3.95%) are the top three stocks of the fund. The fund charges 47 bps in fees.

iShares Global Consumer Discretionary ETF RXI

The underlying S&P Global Consumer Discretionary Sector Index measures the performance of companies from the consumer discretionary sector. Components include consumer product manufacturing, service, media and retail companies. The United States has 61.38% of the fund followed by Japan’s 15.33%. The fund charges 47 bps in fees. Retailing accounts for 44.55% of the fund, which is followed by 20.73% in autos and components. Amazon (19.96%), Home Depot (4.63%) and Toyota Motor (4.07%) are the top three stocks of the fund.

iShares Global Tech ETF IXN

The underlying S&P Global Information Technology Sector Index measures the performance of companies of the technology sector. The United States holds 79.03% of the fund followed by Japan’s 4.50%. The fund charges 47 bps in fees. Apple (15.89%), Microsoft (13.51%) and Visa (4.08%) take top three positions in the fund. The fund charges 47 bps in fees.

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