What interest rate rise could mean for your investments

On Thursday 2 August 2018, the Bank of England Monetary Policy Committee voted unanimously to raise the interest rate from 0.5% to 0.75%.

It was the first rise in nine months and only the second in a decade.

Commenting on the move, Darius McDermott, managing director of FundCalibre said: “This was the right move from the Bank of England. It gives it a little bit of room to manoeuvre if conditions worsen due to a hard Brexit, or indeed any other event that could knock economic growth.

“I fully expect the Bank of England to continue to take a slow pace with any future rises. So there is little reason for investors to make any big changes to their portfolios at this stage, especially as this increase was already priced into markets.

“A couple of areas of the market, like house builders and the high street, could take a hit. As mortgage repayments rise and consumers possibly need to tighten their belts, less money could be spent. Let’s not forget there is a generation of mortgage holders out there who have never experienced real rate rises.

“Conversely, insurers and banks may benefit slightly, as could brokers if market volatility increases.”

Value funds that could benefit from the rate rise

Investec UK Special Situations

Alastair Mundy has a well-earned reputation as one of the most disciplined and successful contrarians operating in the UK market today. His approach tends to be especially successful during turning points in investor sentiment when investment fashions change. The fund seeks to exploit the ‘herd’ mentality of capital markets by investing in UK companies that are both unloved and undervalued and is currently overweight the UK banking sector.

Schroder Recovery

This quietly aggressive, value-driven fund has been run by the same lead managers since 2006, with a continuity of process and a very consistent track record. It invests in companies valued at less than their true worth and waiting for a correction. Recovery investors need a hard head and an open mind – being contrarian can be bruising but very profitable, as the long-term returns of this fund have shown. This fund is also overweight financials.

R&M UK Recovery

Finding undervalued companies that are yet to deliver on their potential is the aim of this fund. The manager uses his three decades of investing experience to identify companies where he believes management have the capability to turn things around. We like that he looks to add to his holdings at almost fire-sale prices in volatile times, which further increases the possibility of long-term capital

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice. Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.