For many, September has been seen as the most logical month, but this consensus has been increasingly rattled by global growth fears, exacerbated by the devaluation of the yuan midway through August.
However, while the impact of the first hike is likely to be large in sentiment terms when it does finally come, the impact on funds might be less of an issue than first thought.
Within the universe of global funds available to UK investors, only half will be more than marginally directly sensitive to an increase in US rates, new research by PureGroup has revealed.
But of the remaining funds, there are a few that will either find it a significant headwind or a welcoming tailwind when it does finally arrive.
Given that rates in the US have not moved in nine years, it is unsurprising that many funds in the universe have based their asset allocation decisions on things other than how to get the maximum benefit from a change in rates in the US.
That said, it is likely to become an increasingly important factor for returns once the cycle does begin.
Also unsurprising is that the list of funds that will be most and least affected by a rise in rates are fairly small, as such funds are often more concentrated. Some, such as the Lazard Global Strategic Equity Fund, which will find a rate rise beneficial, have as little as $11.9m (£7.5m) under management.
But there are some in the £100m to £200m range. Based on quantitative analysis of each fund’s historical return profile, Pure Group’s model predicts how each fund is likely to react to a range of macroeconomic factors. The biggest outlier, with £3.75bn under management, is the FundSmith Equity Fund, which PureGroup’s macro factor screen says is the sixth most positively affected fund.
Sensitivity to US rate hike
The other major point to note is that, at the extremes, those funds that are negatively affected will find the rate hike a much stronger headwind than the tailwind effect likely on the other side.
Patrick Murphy, founder of PureGroup, said: “It is important to understand how changes to the wider economy may impact a fund’s potential performance. Focusing on past performance, or just one risk factor, may significantly impact your overall return.
“An appreciation of a wide range of macroeconomic risks and how these affect each other is crucial in these uncertain times. As many central bankers have highlighted, in the long term it is the trend that is more important than a single factor change.”
