Fed Hikes, Forecasts More to Come; What to Do ...
The Federal Reserve did exactly what I predicted it would: Raise interest rates for the third time in this rate-hiking cycle. Wednesday’s move boosted the benchmark federal funds rate to a range of 0.75%-1% from 0.5%-0.75%.
Janet Yellen didn’t just declare “Mission Accomplished” and drop the mic, either. She forecast that the Fed will continue to hike interest rates — in the rest of 2017 and beyond. And if anything, those forecasts could prove too conservative. History shows that major rate-hiking cycles ultimately last longer and drive rates higher than analysts expect at the outset.
None of this should surprise you of course. All my research suggested this was coming, and I said so in recent Weiss Ratings commentaries. I even put together a brand-new, comprehensive educational course designed to help investors like you profit from multiple Fed hikes and their fallout. It’s called How to Pile Up Profits from the Greatest Interest Rate Cycle in 5,000 Years, and I recommend you check it out if you haven’t already by clicking here.
Not quite ready to take that step? Then here are a few ETF-related pointers to help you survive and thrive in this rising-rate environment:
• Shift OUT of lower-risk, lower-yield bond ETFs and IN to select, higher-risk, higher-yielding ones. After all, the Fed isn’t just hiking rates because it feels like being mean. It’s hiking rates because the economy is improving. That bodes well for credit quality, favoring investments like convertible and high-yield bond ETFs over risk-free Treasury ETFs.
One diversified investment option to get you started is the SPDR Bloomberg Barclays High Yield Bond ETF (JNK, Rated “C”). Or you might want to investigate the VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL, Rated “B”). It’s one of the few ETFs that specializes in higher-risk bonds that also merits a BUY grade from our Weiss Ratings.
• Buy select higher-yielding, dividend-paying stocks. But focus on those with more leverage to an improving economy versus those that perform best in pre-recessionary environments.
For instance, you might want to swap out of something like the Utilities Select Sector SPDR Fund (XLU, Rated “B”) — which invests in less economically sensitive utilities – and in to something like the VanEck Vectors BDC Income ETF (BIZD, Rated “C-”) — which invests in economically levered Business Development Companies, or BDCs.
You’d expect an improving economy to boost energy demand, too, helping stabilize the oil and gas sector. That, in turn, would light a fire under high-yielding Master Limited Partnerships (MLPs).
So keep an eye on ETFs like the Alerian MLP ETF (AMLP, Rated “D+”) and the VanEck Vectors High Income MLP ETF (YMLP, Rated “D”). If they can climb out of our SELL zone, they may be worth a look. Or comb through their holdings using our Weiss Rating website and find the BUY-rated stocks in them … then sprinkle one or two into your portfolio now.
These are just a sampling of the kinds of tips you’ll find in my course. But hopefully, they’ll get you started on the path to greater wealth building and protection in this era of rising rates. Because if there’s one thing Yellen made clear this week, it’s that the era is far from over!
Until next time,
ETF Spotlight Edition, by Mike Larson, Senior Analyst
Mike Larson is a Senior Analyst for Weiss Ratings. A graduate of Boston University, Mike Larson formerly worked at Bankrate.com and Bloomberg News, and is regularly featured on CNBC, CNN, Fox Business News and Bloomberg Television as well as many national radio programs. Due to the astonishing accuracy of his forecasts and warnings, Mike Larson is often quoted by the Washington Post, Chicago Tribune, As-sociated Press, Reuters, CNNMoney and many others.