Playing the interest rate ‘Groundhog Day’ next year

Bill Murray in a scene from the 1993 film "Groundhog Day."
Columbia Pictures | Getty Images
Bill Murray in a scene from the 1993 film "Groundhog Day."

Another year almost here and yet again it seems we are looking at lower interest rates despite the Federal Reserve's best efforts to tell the market they will go higher. It could mean more good news for construction and real estate shares.

It's "Groundhog Day" starring Janet Yellen—not Bill Murray.

"I don't see why the 10-year can't go below 1 percent," said Brian Kelly of Greenwich, Connecticut-based Brian Kelly Capital. "The bond market is a very strange place right now, you have capital inflows coming in despite the Federal Reserve saying they're going to raise rates—I see zero chance of that happening."

Kelly isn't alone.

Doubleline Capital's Jeffery Gundlach, who nailed the drop in rates this year, said last week during a webcast, "If oil goes to $40, then the 10-year could be going to 1 percent."

One could play it with Kelly or Gundlach and just own Treasurys. Kelly owns the iShares Barclays 20+ Treasury Bond fund. Kelly sees three reasons for lower rates: foreign flows, deflationary forces and a flattening yield curve.

Technical analysts—many of whom agree with the fundamental guys on the direction of rates—see a nice trend in real estate shares.

Read MoreThe Fed may start sending a new message on rates

"I spend my days searching far and wide for only the best risk/reward opportunities, and right now I think REITs are one of them," wrote J.C. Parets of Eagle Bay Capital on his blog for clients. "Money managers are not getting the yield they need out of the bond market, so they have to go into the stock market in order to get it. So for many reasons, I think they continue to pour money into this space."

Parets likes the iShares Dow Jones U.S. Real Estate ETF if it can stay above its 2013 high level of $75.

Another way to find the best trade is looking at history. Using Kensho, a quantitative tool used by hedge funds, the overwhelming winner when the 10-year is between 1 and 2 percent is construction-related stocks. There have been a little more than 300 days since 1980 when the 10-year was trading in this low range.

It was most recently at 2.10 midday Monday.

Construction shares, as represented by the iShares Dow Jones Home Construction ETF, are the best performer, Kensho found. The SPDR S&P Homebuilders ETF and the SPDR KBW Regional Banking ETF were the second- and third-best performers, respectively.

After a run at the start of 2014, those ETFs are back down to almost little changed for the year on the fear rates would rise.

Wednesday the Fed ends its last meeting of the year and many economists see the central bank removing its "considerable time" phrasing from its statement when talking about when to raise rates. No matter what language, traders don't see it reflecting the reality of conditions still pointing to lower rates.

—CNBC's parent NBCUniversal is a minority investor in Kensho.

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