Rising interest rates may boost materials stocks

Rising interest rates have historically benefitted cyclical securities like mining stocks, fertilizer stocks and gold stocks. The Money Reporter picks a mutual fund with broad exposure to the sector, a fund more narrowly focused on mostly gold stocks and a small cap mutual fund which may benefit from a strengthening stock market.

Materials_StocksWith the Bank of Canada bent on raising interest rates, materials stocks are poised to outperform the market. In fact, rising interest rates have historically acted as a boon for these cyclical issues. Some of the types of materials stocks that have benefitted from past interest-rate increases are base-metals mining stocks, fertilizer stocks and even gold stocks.

Aggressive mutual fund investors seeking exposure to materials stocks and the resource sector generally may want to consider specialized funds such as the two we recommend in our Mutual Fund Planning Guide. RBC Global Resources Fund gives broad exposure to the sector, holding both energy and materials stocks. RBC Global Precious Metals Fund has a more narrow focus, holding mostly gold stocks.

If the Canadian market strengthens in the second half of the year, growing confidence may benefit the shares of smaller companies. We think IA Clarington Canadian Small Cap Fund would be a good way to play a strengthening stock market.

3 natural resources stocks to buy

For those of you that would prefer investing directly in natural resources stocks, we find the Canadian market more attractively valued than that of the U.S. It also has the capacity to play catch-up if underperforming resource stocks come to life as a result of global economic expansion.

If you want exposure to the resource sector, we feel now is an opportune time to buy in a beaten-down sector. You might want to consider Agnico Eagle (TSX—AEM; NYSE—AEM), Suncor (TSX—SU; NYSE—SU) and Teck (TSX—TECK.B; NYSE—TECK) from our recommended list of very conservative common stocks.

This is an edited version of an article that was originally published for subscribers in the July 21, 2017, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.

Money Reporter, MPL Communications Inc.
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