Interest Rates

Don’t fear the rate rise: Philadelphia Trust

Leslie Shaffer | Writer for
These stocks will perform well when rates rise

Equity investors may be jittery over the 10-year Treasury note yield's latest climb above 3 percent, but not only are stocks still likely to climb, some sectors will get an extra fillip from higher interest rates, a private banker said.

"A rising interest rate environment is not going to really hurt us too badly initially because interest rates aren't going to really rise that much," said Michael Crofton, CEO of Philadelphia Trust, which has $1.97 billion under management. Even with the benchmark Treasury yielding over 3 percent, "historically that's a very low interest rate," he said.

"If you couple that with an economy that might be growing as much as 4 percent, you really don't have any worry from interest rates right now," he said.

(Read more: US bank stocks could rally 30%: RBC)

In addition, higher rates aren't likely to dent most corporate earnings, Crofton told CNBC.

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"Most corporations have paid down debt, or refinanced their debt at much lower interest rates or bought back stock," he said.

(Read more: 10-year Treasury yield at 3%? Not a problem for stocks)

"That will leverage their results," he added. "If the economy now starts to pick up steam as last week's numbers seemed to indicate, that economic growth will translate into a multiplier effect with equity prices. If the economy is truly recovering, the stock market is poised to do significantly better next year."

Crofton expects U.S. equities may rise as much as 10 percent in the first quarter, while performance in the rest of the year will be dependent on the economy.

Certain industries won't be affected by rising rates, while others are even likely to get an extra fillip, Crofton noted.

(Read more: Do US equities have room to rise?)

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The tech industry will benefit from the economic expansion, he said. "They don't really have the constraints that companies dependent on debt would, because most tech companies have no debt," he said. He also expects "old world" tech companies, which are relatively new to shareholder payouts, will continue to raise dividends ahead.

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In addition, the financial sector is set for a boost, he said. "Financial companies, banks, insurance companies, brokerage firms (and) money management firms, all will do extremely well in a rising interest rate environment because their margins will actually expand," Crofton said.

In the sector, he likes large "deposit gatherers" as they will benefit as the yield curve steepens.

"While the cost of deposits won't go up because (short-term) interest rates will stay low … the amount they can generate from loan payments will go up as longer-term interest rates go up so banks' net interest margin spread should improve," he said.

(Read more: Are rising interest rates actually a good thing?)

He expects sector winners will include big players JPMorgan, Citigroup, Bank of America andWells Fargo, as well as some of the "super-regionals," such as PNC and US Bancorp.

"Banks that will lose will be community banks, regional banks that don't have a diverse product offering or a diverse client base," he said.

In addition, "I would try to avoid particularly the U.S. domestic bond market. All phases of the domestic bond market are very much ahead of themselves" with rates about to rise, Crofton said. "I wouldn't own anything with a maturity longer of than say five years. Or I would own longer dated securities that have a low cost basis and high coupons."

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1