Top 5 US stocks for rising rates

Kanish Chugh

ETF Securities

With interest rate hikes causing global share prices to tumble, investors are searching for other options. One potential option is low volatility companies, which are companies with share prices that move up and down less than average. And indeed, low volatility indexes have outperformed the past six months in the United States, where interest rates have started to climb.

Below we look at the top 5 US low volatility stocks. They each feature in the ETFS S&P 500 High Yield Low Volatility ETF (ZYUS).

Lockheed Martin

Lockheed is perhaps the most famous name in US defence. Lockheed makes fighter jets like the F-35 and the F-21, as well as an array of missile and defence systems. As may be expected of a defence company, almost all of Lockheed’s revenue comes from selling things to governments. Half of its revenue comes from the US Department of Defense alone. As Lockheed’s client base is government and defence-related, it tends to be shielded to a large extent from economic cycles. Lockheed has also been a beneficiary of Russian aggression in Ukraine, as governments worldwide increase defence spending.

IBM

The previous decade went badly for IBM. As a result of cost-cutting under then-CEO Ginni Rometty, IBM missed much of the growth of cloud computing—despite being well-positioned to capitalise on it. But under new CEO Arvind Krishna, IBM has turned a corner. After taking over, Krishna immediately spun off IBM’s legacy managed infrastructure business (now a separate company called Kyndryl). He then invested heavily in cloud computing, allowing IBM to compete for a slice of this high-growth area with Microsoft and Amazon. IBM is now a growing business again, with cloud computing and artificial intelligence at its heart.

AT&T

The largest telecoms company in the US, AT&T will be most famous to Australians for its ownership of CNN, the cable news company. AT&T started 2022 with a big spin off, selling Warner Bros, the Hollywood studio it acquired. The company is now focusing on 5G, and the opportunity it provides to sell internet connections and mobile devices. As AT&T sells a service that’s essential to most households, its revenue is recurring and more predictable. This then helps ensure its stock is less volatile.

PPL Corporation

The Pennsylvanian energy giant, PPL, is a utility company that provides electricity and natural gas to millions of homes and businesses, mostly in the southern states of the US. PPL is vertically integrated: meaning it generates the electricity, distributes it, and then sells it. As with other utilities companies, the service PPL provides is essential. And as such its revenue tends to be more reliable.

Ventas Inc

Ventas is a real estate investment trust, or REIT, that focuses on healthcare properties – like those running nursing homes, care centres and surgeries. Like most other REITs around the world, Ventas was hit hard by covid, as landlords were required to make rent concessions as tenants saw their businesses decline during covid lockdowns. However, the company has recovered strongly and has been able to charge higher rents on the back of a strong recovery. Furthermore, as Ventas is a REIT it enjoys more favourable tax treatment in the US. 

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Kanish Chugh
ETF Specialist & Head of Distribution
ETF Securities

Kanish Chugh is responsible for distribution covering sales and marketing strategy for institutional, intermediary and retail clients. He joined ETF Securities in 2015 and has previous experience with Fidelity International, BlackRock and...

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