US Markets

How to play a Fed rate hike: Experts

Here's your rate hike game plan: Pros
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Here's your rate hike game plan: Pros

A Federal Reserve rate hike will have "absolutely" no impact on the value of equities, but because it will nonetheless move some stock prices, investors should be prepared to scoop up names that overreact, market pro Charlie Bobrinskoy said Friday.

That rate increase could come as early as next week, when the Fed holds its September meeting.

"Because there's so little liquidity in the market and the Volker rule, stocks are going to move more than they should," the vice chairman and head of investment group at Ariel Investments said in an interview with CNBC's "Power Lunch."

If the central bank announces a rate rise, Bobrinskoy would watch out for attractive interest rate-sensitive stocks. For instance, KKR usually gets hit when rates increase, even though it has no impact on the business, he said.

On the other hand, if rates remain flat, investors can take advantage of the likely drop that will occur in bank shares. Bobrinskoy would also look to sell yield-sensitive stocks like real estate investment trusts, which he believes are already overpriced and will likely trade up on any no-rate-hike news. In addition, long-term bonds should be sold, he said.

Where to find value in this market
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Where to find value in this market

Rob Morgan, chief investment officer at Sethi Financial Group, isn't betting on a September hike. Because of that, he's overweight stocks in cyclical sectors.

That said, he has a game plan in place in the event rates rise next week.

"Historically, bull markets in equities continue well into a Fed rate hike campaign but it does make some sense to begin to get a little more defensive, take some equity chips off the table and shift into some defensive sectors," he told "Power Lunch."

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Meanwhile, James Liu, global market strategist at JPMorgan Funds, said it's important not to be caught out of position when the hike happens, especially since the Fed has said it wants to start raising rates this year.

"It's the cyclical sectors that tend to do well when rates start to rise, especially if the U.S. economy stays intact despite all this global turmoil," he explained Friday on "Power Lunch."

Liu likes technology, financials and consumer discretionary.

—CNBC's Brenda Hentschel contributed to this report.

Disclaimer

Disclosure: Ariel Investments owns KKR. Neither Charlie Bobrinskoy nor his family own KKR.