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Investing

Credit Suisse Built an ETF Portfolio Made for Rising Interest Rates

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By Lee Jackson Updated Published
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US Federal Reserve
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While the Federal Reserve most likely will not taper its bond-buying program known as quantitative easing this fall, and perhaps not this year, the fact that interest rates are going higher at some point is still in play. The dramatic sell off in the fixed income markets from May until early July gave investors a peek behind the curtain at how things may look when the Fed does start its easing, eventually discontinue buying and ultimately start to raise rates.

The portfolio research analysts at Credit Suisse have taken advantage of the May to July sell off in the bond market, and history, to assemble a portfolio of exchange traded funds (ETFs) that represent sectors that have proven to do well in a rising interest rate environment. That advantage for investors, is that ETFs give broad market coverage within a sector. If a specific stock within that sector does poorly or misses earnings, the other stocks in the ETF help add support.

Here is the Credit Suisse rising interest rate equity portfolio. Each ETF represents 6.7% of the portfolio.

Banks: SPDR S&P Bank ETF (NYSEMKT: KBE)

Banking and Investment Services: iShares U.S. Broker-Dealers ETF (NYSEMKT: IAI)

Aerospace and Defense: iShares U.S. Aerospace & Defense ETF (NYSEMKT: ITA)

Financial Services: iShares U.S. Financial Services ETF (NYSEMKT: IYG)

Biotechnology: PowerShares Dynamic Biotech & Genome (NYSEMKT: PBE)

Media and Publishing: PowerShares Dynamic Media (NYSEMKT: PBS)

Internet: PowerShares NASDAQ Internet (NASDAQ: PNQI)

Semiconductors: iShares PHLX SOX Semiconductor Sector (NASDAQ: SOXX)

Retail: SPDR S&P Retail (NYSEMKT: XRT)

Health Care Providers and Services: iShares U.S. Healthcare Providers ETF (NYSEMKT: IHF)

Leisure and Recreation: PowerShares Dynamic Leisure & Entertainment (NYSEMKT: PEJ)

Insurance: iShares Insurance ETF (NYSEMKT: IAK)

Food: PowerShares Dynamic Food & Beverage (NYSEMKT: PBJ)

Health Care Equipment and Supplies: iShares U.S. Medical Devices ETF (NYSE: IHI)

Oil and Gas Equipment and Services: iShares U.S. Oil Equipment & Services ETF (NYSEMKT: IEZ)

While no portfolio is guaranteed to work in any given environment, the Credit Suisse analysts do have history on their side. Clearly the portfolio overweights certain sectors while totally omitting others. The advantage for investors is that they have time to assemble the portfolio. Most interest rates strategists are now predicting tapering to begin early next year, and interest rate increases to begin at some point in 2015.

Photo of Lee Jackson
About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.

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