Why Interest Rate Sensitive Companies Should Be Considered In Today’s Rising Interest Rate Environment

Among the sectors which has been hardest hit since the beginning of the year, utilities and utilities-related businesses have continued to feel the pinch from investors, as the market has shifted sentiment away from interest-rate sensitive industries and toward growth-oriented sectors such as tech.

Indeed, when considering purchasing a regulated utility or a high-flying technology company such as Amazon.com, Inc. (NASDAQ:AMZN), Facebook Inc. (NASDAQ:FB) or Microsoft Corporation (NASDAQ:MSFT), one would surely have been better served in buying shares of any or all of the above-mentioned companies, steering clear of utilities.

Since the beginning of the year, the utilities sector has underperformed the vast majority of its sector counterparts, as central banks around the world begin to tighten a monetary policy which has remained ultra-loose for majority of the past decade.

The question of why anyone in their right mind would consider purchasing a significant stake in the utility sector at a time like this is therefore a relevant one.

The argument from some (and an argument I tend to agree with) is that this recent period in economic history is one which resembles bubbles of the past.

Valuation multiples are nearing highs not seen since previous devastating market corrections, a situation which has seemingly not played into the calculations of many prominent investors choosing to focus attention on cyclical sectors, to the detriment of defensive sectors such as utilities – a trend which may be attractive in the short-term but painful in the long-term.

Invest wisely, my friends.

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