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 (NYSEArca: IAI) tracks a basket of brokers and investment banks. IAI has a 0.46% expense ratio.