Share markets have stumbled and tumbled the past few weeks on the back of fears that interest rates would rise in the US.
While the Reserve Bank of Australia may downplay the impact of inflation here in Australia, any rise in US rates would force other central banks to consider doing the same.
This is because countries that are too out of step with the world's largest economy risk having their currency depreciate excessively — and worsen their own inflation.
This climate of fear means, according to Investors Mutual Limited director Anton Tagliaferro, that investors now must seek current cash flow.
"Replacement costs are rising, and financing costs will increase going forward," he wrote on the IML blog.
"Return thresholds will suddenly have bond rates of more than zero to compete with."
With this in mind, Tagliaferro named 3 ASX shares that are ideally equipped to thrive in a rate-rising environment:
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Growth shares will destroy your wealth, says fund manager
According to Tagliaferro, all 3 companies have been "shunned" in recent years by a market that's been obsessed with growth stocks.
"With interest rates rising, these stocks suddenly don't look so boring or dull as things normalise," he said.
"And as investors begin to appreciate real cash flows generated by companies in the next 2 to 3 years, as opposed to hoped-for cash flows in 10 or 20 years' time."
He said that share investors were at a crossroads now where they had to make sure growth assets didn't "destroy" their wealth.
"With interest rates almost certainly to be on the rise in 2022, the sustainability of the returns from growth and speculative stocks is likely to be severely tested."
Tagliaferro's fund is continuing to hunt for value ASX shares that have excellent current cash flow and "very positive outlook" over 3 to 5 years.
"We continue to focus on real companies which have a durable competitive advantage, and that typically have substantial real assets or long-term, monopoly-like licences — not start-ups."
