Yesterday, the Reserve Bank of Australia (RBA) announced an interest rate hike. The official cash rate was lifted by 25 basis points to 3.85%.
This was largely in response to persistently high inflation.
This RBA decision impacts many aspects of the Australian economy.
When a decision like this is made, it's prudent for investors to look at where opportunity may lie.
It's useful to think about what types of ETFs may benefit or be more resilient in that environment.
Rate hikes can pressure some sectors (like high-growth tech or bonds) while supporting banks, commodities, and floating-rate assets.
Here are three ASX ETFs that may be poised to benefit from increased interest rates.
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BetaShares S&P/ASX 200 Financials Sector ETF (ASX: QFN)
The case for this ASX ETF is pretty straightforward.
When the RBA raises the cash rate, financial companies – especially banks – often see improved profitability.
That's because banks can typically pass higher rates onto borrowers faster than they raise deposit costs, at least initially, which can widen net interest margins (NIM) and boost earnings.
This fund has strong exposure to this sector.
It includes a portfolio of the largest ASX-listed companies in the financial sector.
This includes the 'Big 4' banks and insurance companies, while excluding Real Estate Investment Trusts.
In fact, more than 70% of the portfolio is comprised of Australia's largest four banks.
SPDR S&P/ASX 200 Resources Fund (ASX: OZR)
During rate rises, investors often rotate toward sectors tied to commodities (materials, energy, gold) which can outperform as inflationary pressures build and commodity prices strengthen.
This ASX ETF provides exposure to Australia's resource sector (miners, energy).
These stocks have historically reacted well when global demand and commodity prices are strong.
This fund aims to track the returns of the S&P/ASX 200 Resources Index.
At the time of writing, it is made up of 51 holdings, with its largest exposure being to:
- BHP Group Ltd (ASX: BHP) 35.16%
- Rio Tinto Ltd (ASX: RIO) 7.80%
- Woodside Energy Group Ltd (ASX: WDS) 6.64%
BetaShares Global Banks ETF – Currency Hedged (ASX: BNKS)
Australia isn't the only country that operates with a central bank cash rate target.
As central banks tighten policy, bank profitability in major economies like the US and Europe often strengthens, which directly supports the earnings of the banks held in BNKS.
For investors who anticipate global economies may also increase rates this year, this ASX ETF comprises the largest global banks (ex-Australia), hedged into Australian dollars.
This also provides international diversification, so an investor would not be relying solely on Australian rate decisions.
