Investors should consider three key sectors in response to Wednesday’s release of the minutes of the Federal Reserve’s latest policy meeting, which said that hike decisions would be reliant upon a meeting-by-meeting analysis of the economic data, according to the CEO of a leading advisory and fintech.
DeVere Group’s Nigel Green said the world’s most influential central bank’s minutes show a slightly dovish tone regarding its plans to hike interest rates in 2022.
“However, rates are going up,” he added.
The Fed meeting minutes concluded that, “some participants expressed concerns about the potential of financial conditions tightening excessively as a result of a quick removal of policy accommodation.”
Most investors expect the Fed to begin raising rates in March with a starting increase of half a percentage point, and to continue hiking rates throughout the year.
“Against this backdrop of the move towards normalisation of monetary policy by the Fed and other major central banks around the world, I believe, investors should consider increasing their portfolio exposure in three key sectors: tech, financials and raw materials,” Green said.
The deVere chief executive added that there will be some volatility in the tech sector as rates go up and economic growth slows.
“Higher rates mean tech firms’ projected profits are worth less in investors’ valuation models, as peak earnings are not expected for years to come.
Fundamental trends
“However, the pandemic has led to the advancement of fundamental trends, such as online shopping, remote working and gaming – all of which have tech at their core.”
Green went on to say, “history teaches us that financial stocks perform well when rates are being hiked. That said, if the Fed acts too fast and too extreme, this should be reviewed.
“Raw materials is the other sector that investors should consider – despite the slowdown in economic growth in major economies. Traditionally, they’re a safe inflation hedge. Plus, they are currently undervalued in the market.
“In addition, we can expect infrastructure spending by governmental agencies to continue – or even increase.”
On a wider note, the deVere CEO said that, as always, diversification remains investors’ best tool to position themselves for risk mitigation and to be able to seize the opportunities as they are presented in the market.
“Financial history suggests that long term investors with a balanced, multi-asset portfolio, are best placed to ride out such periods of market nervousness as the macro-economic conditions alter.
“As monetary policies are normalised, there will be winners and losers. A good fund manager will come into their own in this regard,” Green concluded.
