Three investment ideas for falling rates
With central banks beginning to loosen monetary policy, Merryn Somerset Webb discusses three investment ideas that you may find attractive in a falling rates environment. Is it time to stick or twist?
Masterclass sound bites from our three portfolio managers
Watch the masterclass where we explored the rationale behind allocating to UK mid-caps, US smaller companies and global infrastructure income at this point in the rates cycle.
Investment idea 1
UK equities: mid caps
For investors focused on the UK, falling interest rates could boost the stock market by encouraging higher consumer spending and investment. UK mid-cap stocks, which include top domestic firms and global leaders, have historically outperformed the broader market after rate cuts. Following a challenging period, we believe mid-caps are poised once again to lead the way as economic momentum builds.
Source: Bloomberg, 1 April 2024. Time period: 1990 – 2023. Past performance is not an indicator or a guarantee of future results.
Investment idea 2
US equities: small caps
US small caps have the potential to outperform as interest rates fall. Smaller companies, often less profitable and more indebted than larger firms, are particularly impacted by higher rates. This has led US small-cap shares to their lowest relative value to large caps in 25 years. With rates set to decline, the reduced debt burden therefore leaves US small caps attractively valued and poised for growth.
Source: Bloomberg, as of 31 March 2024. Past performance is no guarantee of future results.
Investment idea 3
Global listed infrastructure
Global infrastructure assets like utilities, toll roads, and airports provide investors with stable, long-term cash flows and are less sensitive to short-term economic fluctuations. Lower interest rates reduce the cost of financing these projects, enhancing their attractiveness. Historically, global listed infrastructure has delivered compelling absolute returns following US Federal Reserve rate cuts and has significantly outperformed the broader global equities market.
Source: ClearBridge internal research, May 2024. MSCI. Past performance is no guarantee of future results.
- This chart shows the average 6-month, 1-year, 3-year and 5-year infrastructure performance following the last Fed rate hike before cutting cycle begins.
- It covers five Fed rate cuts in 1989, 1995, 2001, 2007 and 2019, irrespective of economic conditions.
- We looked at the individual stocks in our core universe of stocks (RARE 200) vs a proxy for global equities (MSCI ACWI).
- It is clear that in the dawn of the last five rate cut cycles, our core infrastructure stock universe has historically delivered compelling returns in absolute and relative terms.
Related funds
FTF Martin Currie UK Mid Cap Fund
A high conviction portfolio of quality UK mid-cap companies that typically enjoy superior earnings growth and are likely to benefit from any economic rebound.
FTGF Royce US Small Cap Opportunity Fund
An established US small and micro-cap strategy offering diversified exposure to the US economy and a proven long-term track record.
FTF ClearBridge Global Infrastructure Income Fund
An income-orientated, global listed infrastructure fund, targeting a high level of income with a secondary objective of long-term capital growth.
FTF Royce US Smaller Companies
This US small cap strategy is managed by a pioneering group of US smaller company specialists and has a long track record of delivering solid returns.
Investments entail risks, the value of investments can go down as well as up and investors should be aware they might not get back the full value invested.
Watch our masterclass - Grate Expectations: where next as interest rates shift
Hear financial commentator Merryn Somerset Webb and three fund managers explore the rationale behind allocating to UK mid-caps, US smaller companies and global infrastructure income at this point in the rates cycle.
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Important Legal Information
Investments entail risks, the value of investments can go down as well as up and investors should be aware they might not get back the full value invested.
This webpage is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situations or needs of investors. Investors should consult their financial advisor before deciding to invest.