From Nuveen Investments

Higher Interest Rates
May Benefit Some Financial Companies

After 8 years of a Funds Rate at 0-25% the Federal Reserve began slowly increasing rates in December 2015, an indication that the economy is slowly and steadily improving.

Looking ahead, higher interest rates may influence both economic and earnings growth. But selecting companies with strong balance sheets and a minimal need to borrow may limit the impact of higher funding costs.

Through their capacity to lend, insure and manage a growing base of assets, financial companies may be poised to benefit from a rising rate environment, one by-product of a stronger economy.

How financial companies may benefit

  • Banks have adjustable rate assets that reset higher (with the Prime lending rate), while their deposits reset higher more slowly
  • Bank multiples may expand as their earnings improve – a result of an expansion in net interest margins
  • Increased economic activity that led to the rate hike generally means more loan demand
  • Investors may re-allocate their investments to position themselves for a higher rate environment, creating opportunities for asset managers to capture more flows
  • Insurance companies’ ability to earn higher returns on the premiums they collect from policyholders
Risks and Other Important Considerations

This information should not be relied upon as investment advice, recommendations, offers or solicitation of any particular security, asset class, fund, strategy, or investment product. Investing entails risk, including the possible loss of principal. There can be no assurance that any investment or asset class will provide positive performance over any period of time. Dividend yield is one component of performance and should not be the only consideration for investment. Dividends are not guaranteed and will fluctuate. Equity investments such as large-cap stocks are subject to market risk or the risk of decline in response to adverse company news, industry developments, or a general economic decline. Investments in small- and mid-cap companies are subject to greater volatility. Non-U.S. investing presents additional risks such as the potential for adverse political, currency, economic, social or regulatory developments in a country including lack of liquidity, excessive taxation, and differing legal and accounting standards. Past performance does not guarantee future results.

The statements contained herein reflect the opinions of Santa Barbara Asset Management, LLC (“Santa Barbara”) as of the date written. Certain statements are forward looking and/or based on current expectations, projections, and information currently available to Santa Barbara. Such statements may or may not be accurate over the long-term. While we believe we have a reasonable basis for our comments and we have confidence in our opinions, actual results may differ from those we anticipate. We cannot assure future results and disclaim any obligation to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise. Statistical data was taken from sources which we deem to be reliable, but their accuracy cannot be guaranteed.

Santa Barbara Asset Management, LLC is a registered investment adviser and an affiliate of Nuveen, LLC.