Utilities vs. rising interest rates

Article Excerpt

Traditionally, the utilities sector suffers when interest rates rise. That’s because many of its companies carry lots of debt. Higher rates make it more expensive to raise money and refinance that debt. As well, their shares, which typically offer high yields, compete with fixed-income instruments for investor interest. Higher returns, on say, bonds or GICs, can make them more attractive to income investors. However, increased economic activity and growth usually accompany higher interest rates. That faster growth is, in turn, good for utilities: it lifts power demand, for example, and boosts electricity rates. Still, rather than trying to predict the positive or negative effects that higher interest rates will have on specific sectors, you’re better off keeping your portfolio well-balanced across most, if not all, five economic sectors. sectors…

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