Now is a good time to take a look at the best types of mutual funds for rising interest rates. The Federal Reserve will likely remain in credit-tightening mode throughout 2017, and smart investors can expect at least two rate hikes during the year.
There’s never a surefire bet on the timing and degree of the increases. However an environment of rising rates generally coincides with the late phase of a business cycle. When looking at the U.S. economy and capital markets through this lens, the types of mutual funds that tend to do well in this environment rise to the surface.
The late-cycle phase can be tricky because you tend to have growth stock funds outperforming but prices start to look expensive. Bond funds can also decline in value as rates climb. So you have a delicate balancing act to find mutual funds that can maximize return while minimizing risk.
With that background, here are three of the best types of mutual funds to buy when interest rates are rising, along with top fund picks for each category.