Power Play: Investing in higher interest rate environment

Federal Reserve Bank Chair Janet Yellen.
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Federal Reserve Bank Chair Janet Yellen.

The market selling off on Tuesday as the dollar soars on the likelihood of an interest rate hike this year. But higher rates may not be a bad thing for investors if they have the right strategy.

Two market veterans tell CNBC's "Power Lunch" what they are looking at in an interest rate sensitive environment.

Erik Ristuben, chief investment strategist at Russell Investments, is watching the relationship between the bund and the U.S. treasury. If the yield on the 10-year goes up, the 10-year bund yield will also move up. "Improving economic conditions in Europe will lead to higher inflation expectations in Europe and positive inflation equals positive growth. Don't fight the Fed," Ristuben said.

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He is currently modestly underweight U.S. equities and overweight Europe.

Julian Emanuel, U.S. equity and derivatives strategist at UBS, likes materials if the Fed is planning to lift rates this year. "Materials have outperformed on the 6 months pre-and-post first Fed rate hike in each of the past 3 hiking cycles," Emanuel said.

The pan-European Euro Stoxx 600 Index and materials sector were both lower during trading.