The market is pricing in only half the number of Federal Reserve rate hikes that will likely come by the end of 2019, private equity giant KKR warned on Thursday.
KKR anticipates five increases by that time, while the market is only pricing in 2.5, said Henry McVey, the firm's head of global and macro asset allocation team.
"Earnings are going to come in stronger, President Trump's tax cut actually leads to more spending, and then in the second half of the year you end up with the Fed having to move a little more quickly," he said in an interview with CNBC's "Closing Bell."
The central bank has indicated it expects three increases in 2018. It last hiked rates in December, pushing the target range to 1.25 percent to 1.5 percent.
To take advantage of central bank normalization, McVey said, KKR likes names that have "complexity" or have been "left behind." He'd stay away from growth stocks.
"We've been most struck by what's going on in the growth part of the market. If you look at the Russell Growth it's now back to '99's levels," he said.
Instead, assets such as MLPs — master limited partnerships — have been "left for dead," he noted.
"They're the only instrument right now that has a yield above average."
McVey said he also likes mortgage servicing and financials and said KKR is still active in Japan.