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💰 End of the QE era: how to invest if the interest rate rises?⠀
🏛️ Global central banks are trying to get out of the trap of «easy» money and tighten policy, but this process takes time and tight monetary control.
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Bank of Canada shows a positive example − it was the first to complete the QE program and announced an interest rate increase in June 2022. ECB only announced a reduction in euro QE and plans to raise the rate only in the case of a long-term consolidation of inflation above 2%. Against this background, the Fed's policy looks the riskiest. QE reduction is just beginning, and an increase in the interest rate is possible with a serious risk of rising inflation.
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We offer two financial assets on which you can earn money while we wait for an increase in the Fed rate.⠀
Financial Select Sector SPDR Fund (NYSEARCA: XLF): investment in financial services, insurance, banks, consumer and mortgage lending. The main shares in the fund's portfolio are held by Berkshire Hathaway Inc. (12%), JPMorgan Chase & Co. (11.34%), Bank of America Corp. (7.9%). Fund quotes are now trading at a historic maximum, but from January next year, medium-term purchases can be considered.
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Simply Interest Rate Hedge ETF (NYSE: PFIX): a non-standard investment option that, in addition to hedging, can be used for speculative trading. Specifically, this ETF buys swap contracts for 20-year Treasury bonds at a rate of 4.25%. When investors expect an increase in the interest rate, the value of the swap contract also rises, and, accordingly, the shares of this fundraise in price. Profit on the contract can be obtained only at the time of its execution and when the rate on bonds rises above 4.25% (at the moment it is 2%).
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PFIX shares are not suitable for long-term investments, since, after the restoration of control over inflation, investors will lay down expectations for a lower rate, which will lead to a drop in the value of securities. So catch a good moment.
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Profits to y’all!