The US Federal Reserve has just raised its interest rate to officially be higher than Australia's at 1.75% compared to our 1.5%. The Federal Reserve also signalled that it could hike the interest rate two more times in 2018.
Australia and US interest rate policies now seem very different compared to where they were a few years ago. So, how should investors tackle this?
Market commentators believe that many people moved out of cash and into 'safe' shares to boost the yield or return they were getting for their money. That means shares like Sydney Airport Holdings Ltd (ASX: SYD) and other defensive shares, plus high-yielding shares like Telstra Corporation Ltd (ASX: TLS), became the flavour of the month.
Investors may start selling those types of stocks and returning to safer assets like US Government bonds if the yield is high enough.
The best way to beat this change is to invest in shares that aren't defensive and preferably have a lot of cash, or perhaps even no debt, such as these stocks:
Altium Limited (ASX: ALU)
Altium is an electronic PCB software company which provides engineers the tools they need to build the items of tomorrow. The business is growing at a terrific rate, in its latest report it revealed that earnings per share (EPS) grew by 50% in the first half of FY18.
It's a tech stock, so it wouldn't be counted as defensive. It ended 2017 with no debt and US$36 million cash. It's trading expensively today, but it could still beat the market easily over the next five years.
BETANASDAQ ETF UNITS (ASX: NDQ)
This is an exchange-traded fund offered by BetaShares. It offers investors exposure to the biggest technology businesses in the United States listed on the NASDAQ stock exchange. Some of its top holdings include Apple, Alphabet (Google) and Facebook.
Most of the tech companies are improving revenue and profit at a very strong pace. Plus, several of them have many billions of cash on the balance sheet, such as Apple and Alphabet.
REA Group is Australia's leading property portal website business. It owns and runs realestate.com.au, realcommercial.com.au and flatmates.com.au.
It's growing at a pleasing rate due to the ability and success of the company to push vendors towards higher-costing ads, boosting REA's revenue for the same number of properties. It does currently have debt but the company is paying it down quickly.
Foolish takeaway
I think all three shares are very good options to beat the US interest rate rise. At the current prices I'd probably go for the NASDAQ index because it has some of the world's best technology companies in it and a lot of the big ones are trading at very reasonable valuations.
