3 shares to buy with the Fed raising rates

The Federal Reserve has raised rates again by another 0.25% and is now expecting four hikes for 2018, with a few more in the following years.

Economic theory goes that if rates rise, asset valuations should fall somewhat. We’ll see if that happens. It’s quite likely that the share prices of businesses like Transurban Group (ASX: TCL) and Sydney Airport Holdings Ltd (ASX: SYD) will be affected.

So, does that mean all shares are losers in this scenario? I don’t necessarily think so. Here are three ideas to benefit:

MFF Capital Investments Ltd (ASX: MFF)

US banks are one of the best bets to benefit because their net interest margin is likely to increase. However, you can’t directly invest in US banks on the ASX.

MFF Capital is a listed investment company (LIC) that invests in overseas shares, mainly US-based ones. In its May 2018 disclosure it said that at least 21% of its portfolio was allocated to US banks.

Therefore, MFF Capital’s underlying portfolio could benefit from the interest rate rises.

Afterpay Touch Group Ltd (ASX: APT)

The ‘buy now, pay later’ business has won over most of Australia’s major retailers and it’s now expanding to the US.

If interest rates are higher, it means borrowing to buy stuff is more expensive for customers. Therefore a buy now, pay later approach with no interest rate (initially) attached could become more attractive.

Of course, there are question marks over its valuation, the morality of it and also whether regulation will be implemented. However, it is likely to be a net beneficiary over time from rising US interest rates.

Computershare Limited (ASX: CPU)

Computershare may be one of the regular share register services, but it also has a significant amount of client money on its balance sheet that it earns a margin on.

According to its half-year report, Computershare had $11 billion of exposed balances, with $8.2 billion likely to see an immediate lift from any interest rate rises.

Foolish takeaway

A rising interest rate shouldn’t be your only reason for buying the above three shares. You need to believe that MFF Capital’s portfolio will continue performing. You need to believe in Afterpay’s offering and that it isn’t too risky. You need to believe in Computershare’s long-term viability, particularly due to the rise of Blockchain.

However, in next year or two all three shares will likely get a boost from the rising US rates.

Other shares that could keep growing despite the rising rates are these top stocks.

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Motley Fool contributor Tristan Harrison owns shares of Magellan Flagship Fund Ltd. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited and Transurban Group. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Computershare. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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