Is your portfolio ready for lower interest rates? Every economist is lining up to tell us that Australian interest rates are heading lower later this year, perhaps as early as next month.
This raises all sorts of questions about what investors should do in this environment. Will Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) suffer from lower net interest margins (NIMs)?
Should investors chase the typical higher-yielding shares like Transurban Group (ASX: TCL), Sydney Airport Holdings Pty Ltd (ASX: SYD) and Telstra Corporation Ltd (ASX: TLS) even as the yield goes lower and lower?
What discount rate should growth investors use for shares like Altium Limited (ASX: ALU), WiseTech Global Ltd (ASX: WTC), Webjet Limited (ASX: WEB) and A2 Milk Company Ltd (ASX: A2M)?
It makes investing in this era very interesting. Will interest rates return to normal in a few years as we saw in the US (although the Federal Reserve may cut rates soon)? Or will Australia suffer through decades of low interest rates and a weird economy like in Japan.
If you own one of the growth shares that have done well then I'd question if selling is actually a good idea. It could come with capital gains tax, transaction costs and an uncertainty about whether your new investment choice has better investment potential.
There are a few shares that seem like they could be good value to me, like Costa Group Holdings Ltd (ASX: CGC), but quite a lot of them are facing specific issues or are cyclical companies. That's why I'm interested in Vitalharvest Freehold Trust (ASX: VTH) because it's facing short-term issues but also offers a high yield.
I'm also thinking more about smaller ASX shares, which haven't recovered in the same way that large cap ASX shares have in recent months. I really like the idea of buying listed investment companies (LIC) at a discount to their underlying value, such as WAM Microcap Limited (ASX: WMI), which hits two birds with one stone.
Foolish takeaway
I still think there are opportunities if you can find them, it's just that quite a few of those opportunities are away from bond-like shares and prized growth shares.
