Growth stocks in an environment of rising interest rates

wmb194

I came across this a couple of days ago:

Bobziz

I found this article an interesting read: https://www.hl.co.uk/news/articles/could-an-inflation-revival-change-the-world-of-investing#:~:text=It's possible to invest in,if inflation does pick up.

Alexland

Bobziz said:

I found this article an interesting read: https://www.hl.co.uk/news/articles/could-an-inflation-revival-change-the-world-of-investing#:~:text=It's possible to invest in,if inflation does pick up.

As with most HL articles it ends up with suggesting you open their investment accounts

Here's a good slide from the Bankers AGM showing sectors that do well if yields increase.

Bobziz

Alexland said:

Bobziz said:

I found this article an interesting read: https://www.hl.co.uk/news/articles/could-an-inflation-revival-change-the-world-of-investing#:~:text=It's possible to invest in,if inflation does pick up.

As with most HL articles it ends up with suggesting you open their investment accounts

Here's a good slide from the Bankers AGM showing sectors that do well if yields increase.

Tech at 0 correlation ?

quirkydeptless

Alexland said:

As with most HL articles it ends up with suggesting you open their investment accounts

 And if it's not that, HL Active Savings are the answer to your woes 

Alexland

Bobziz said:

Tech at 0 correlation ?

Might be different in the US where they tend to be a bit more excitable.

aroominyork

Alexland said:

Bobziz said:

I found this article an interesting read: https://www.hl.co.uk/news/articles/could-an-inflation-revival-change-the-world-of-investing#:~:text=It's possible to invest in,if inflation does pick up.

As with most HL articles it ends up with suggesting you open their investment accounts

Here's a good slide from the Bankers AGM showing sectors that do well if yields increase.

Please correct my (almost certainly incorrect) interpretation of the graph. Does it say that as interest rates rise, and bond yields rise alongside them, bank shares rise because they are more profitable - perhaps due to higher margins between the rates at which they lend and the rates at which they borrow? And at the other end, healthcare companies' shares fall because their activities depend on high levels of borrowing which become more expensive to service?

Adyinvestment

I found the below video really helpful - he explains how interest rates/inflation affects the stock market in easy to understand layman's terms.

Is it time to concern about stock market volatility? - YouTube

aroominyork

Adyinvestment said:

I found the below video really helpful - he explains how interest rates/inflation affects the stock market in easy to understand layman's terms.
Is it time to concern about stock market volatility? - YouTube

It’s an interesting video though plenty went over my head, especially the graphs in the latter part. I have never tried to understand those and unless you are a day (or close to) trader I don’t see a need to.

One point that stood out was that, in an environment of rising interest rates, you want to invest in companies with high levels of free cash flow. The non-tracker fund in which I have most invested (about 16% of my equities) is Fundsmith Sustainable. Should interest rates rise and there is a swing to value (one lasting more than a month or two) how would it perform? Positive: the ‘quality’ holdings suggest “sit tight”. Negative: tech-heavy growth suggests it could underperform. But is there a deciding Positive that Fundsmith favours companies with high levels of free cash flow?

To see how Fundsmith/Lindsell Train styles (which are comparable) can quickly underperform, take a one year view at Japan funds on Trustnet. Of the 78 funds, in 77th place is Oyster Japan Opps with a +12.1% return. In 78th place is LT Japanese with a -4.3% return. While this might be comparing apples and pears, it is not comparing apples and broccoli.