With the Federal Reserve expected to begin raising interest rates around mid-2015, many investors are looking for stocks that can withstand the moves.
Consider low-volume stocks, which tend to outperform when the Fed tightens policy, say strategists at Goldman Sachs.
Over the last 20 years, the return of low-turnover stocks beat high-turnover shares by 8 percentage points during periods of higher interest rates, the strategists, led by Elad Pashtan, say
in a report obtained by CNBC.
"Volatility is sharply lower on low turnover stocks than on high turnover stocks, providing for a greater risk-adjusted return," they write.
"While seemingly counterintuitive, stocks with very high rates of turnover are more prone to fall during periods of rising volatility and declining liquidity, precisely because these stocks trade more frequently."
Fed rate increases will presumably boost the market's volatility. The central bank has kept its federal funds rate target at a record low of zero to 0.25 percent for six years.
Among the best 2014 performers in Goldman's list of low-turnover stocks are Seaboard, Erie Indemnity, Cantel Medical, Berkshire Hathaway and HNI.
Many financial commentators are concerned that a Fed rate increase next year will send bond yields higher, and that in turn will spell an end to the six-year stock rally.
But Ernie Cecilia, chief investment officer at Bryn Mawr Trust, says rising bond yields don't necessarily mean doom for stock prices.
If the Fed tightens to stave off an inflationary spiral, that's a problem for stocks. But if the Fed and bond yields are responding to stronger economic growth, "it’s not a bad environment,"
Cecilia tells MarketWatch. "In fact, it’s a good environment for stocks."
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