Is your portfolio positioned for low interest rates?


Is your portfolio ready for lower interest rates? Every economist is lining up to tell us that Australian interest rates are heading lower later this year, perhaps as early as next month.

This raises all sorts of questions about what investors should do in this environment. Will Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) suffer from lower net interest margins (NIMs)?

Should investors chase the typical higher-yielding shares like Transurban Group (ASX: TCL), Sydney Airport Holdings Pty Ltd (ASX: SYD) and Telstra Corporation Ltd (ASX: TLS) even as the yield goes lower and lower?

What discount rate should growth investors use for shares like Altium Limited (ASX: ALU), WiseTech Global Ltd (ASX: WTC), Webjet Limited (ASX: WEB) and A2 Milk Company Ltd (ASX: A2M)?

It makes investing in this era very interesting. Will interest rates return to normal in a few years as we saw in the US (although the Federal Reserve may cut rates soon)? Or will Australia suffer through decades of low interest rates and a weird economy like in Japan.

If you own one of the growth shares that have done well then I’d question if selling is actually a good idea. It could come with capital gains tax, transaction costs and an uncertainty about whether your new investment choice has better investment potential.

There are a few shares that seem like they could be good value to me, like Costa Group Holdings Ltd (ASX: CGC), but quite a lot of them are facing specific issues or are cyclical companies. That’s why I’m interested in Vitalharvest Freehold Trust (ASX: VTH) because it’s facing short-term issues but also offers a high yield.

I’m also thinking more about smaller ASX shares, which haven’t recovered in the same way that large cap ASX shares have in recent months. I really like the idea of buying listed investment companies (LIC) at a discount to their underlying value, such as WAM Microcap Limited (ASX: WMI), which hits two birds with one stone.

Foolish takeaway

I still think there are opportunities if you can find them, it’s just that quite a few of those opportunities are away from bond-like shares and prized growth shares.

These ASX growth shares could also be excellent good value ideas in this era of low interest rates.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COSTA GRP FPO, Sydney Airport Holdings Limited, Telstra Limited, and Transurban Group. The Motley Fool Australia owns shares of A2 Milk, Altium, National Australia Bank Limited, and WiseTech Global. The Motley Fool Australia has recommended Webjet Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019



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