Rate sensitives

We write about rate sensitive stocks almost daily. After all, there’s only a handful of “in play” trades on at the moment, and most of them are macro thematic derivatives.

Here, we mean long duration (tech, health, gold, infrastructure) stocks and sectors (that like ongoing low-or-lower real rates) vs banks and insurance companies (that like higher rates, and a return to maturity transformation and/or returns to float) and cyclical commodity plays (iron vs oil) which rally off the back of the better growth expectations that underpin the higher rates.

All of these ideas compete for capital. Anyway, that’s why we write about them.

Now, to the point at hand – those stocks that really don’t like higher rates.

Gold, tech, REITs. Note the estimate of the rolling correlation coefficient, and also of interest, the period average coefficient. Stocks are noisy, individual stocks more so (affected by all manner of idiosyncratic and sub-sector considerations) and as such the rolling coefficient can flip from a positive to a negative and vice versa. Ergo, we are often interested in the “whole of period” calculation as a sanity check to our nearer term estimate. If they both say the same thing, we can be more confident.

Image

To that end, it is interesting that some of the gold names are doing a little better than expected, given the rise in yields. The Aussie 10 year is pushing through towards 1.70%.

Equally, the gold price itself is probably doing a bit better than expected. We’d be much more interested in re-visiting NCM in the high teens.

Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.

This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.

Please note that past performance is not a reliable indicator of future performance.

General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.

Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.

Receive our investment insights

Something went wrong. Please check your entries and try again.