Tighter monetary policy typically dents a country's equity markets. But several top-performing fund managers say they are now positioning for a rally in the U.S. stock market should the Federal Reserve raise interest rates later this year as expected.

Their reasoning: That if the U.S. economy truly is strong enough for the Fed to raise rates for the first time since 2006, then the effect of higher borrowing costs should be more than offset by a pickup in economic growth and resulting rise in corporate profits.

At the same time, many see declining bond prices pushing more investors to stocks.

"As long as inflation stays low, the sweet spot is in the equity market, particularly if the Fed is moving slowly," said Kathleen Gaffney, co-director of diversified fixed income and manager of the $1.8 billion Eaton Vance Bond Fund.

"This is one of our best sources of return right now and a really good source of liquidity if we do get some hiccups in the fixed income market," she added.

Gaffney, whose fund is capped at 20 percent equities, has 18 percent of her portfolio in established large-cap stocks like Walt Disney Co and Humana Inc that have stable dividends.

Few fund managers expect the path to be smooth, of course.

The benchmark Standard & Poor's 500 is up just 2 percent for the year, reflecting anxiety about the prospect of higher rates. Many remember the "taper tantrum" of 2013, when the index fell more than 7 percent in a month on the prospect of less central bank stimulus for the economy.

Nor is a rate hike, or stock rally, guaranteed later this year. "Every time everyone starts to believe that the economy is good and a rate hike is around the corner, the market has gone the other direction," said Sadiq Adatia, chief investment officer at Sun Life Global Investments.

Still, expectations of a 2015 move were reinforced after U.S. Federal Reserve officials indicated on Wednesday that the economy is likely strong enough to support an interest rate increase by year end.

Short-Term Volatility

Several of this year's top-performing fund managers foresee further stock gains.

Connor Browne, a co-manager of the $1 billion Thornburg Value Fund, has been trimming positions in high-flying biotech stocks such as Gilead Sciences Inc and Zoetis Inc in order to have cash on hand to buy stocks if the market has a brief sell-off when the Fed announces its plan.

"Interest rates have been so low for so long" that it's likely that there is at least short-term volatility in the market, he said.

Yet Browne, whose 8 percent gain for the year puts his fund among the top performing large-cap funds tracked by Lipper, sees value in large banks such as JP Morgan Chase & Co that stand to benefit from higher borrowing rates. He's also adding energy companies like Dynegy Inc, which should benefit from stronger economic growth.

There is some evidence that investors already are moving out of higher-yielding areas of the stock market in anticipation of rising rates. Utilities, for instance, are down nearly 10 percent for the year, while the Wilshire US REIT index is down nearly 5 percent for the year.

George Maris, portfolio manager of the $2.3 billion Janus Global Select fund, has been adding to cyclical companies such as railroad Kansas City Southern Inc., asset manager Morgan Stanley, and materials company Air Products and Chemicals Inc. out of the expectation that the U.S. economy is improving.

"Interest rates are going to rise for the right reasons, which is the fact that there is growth in the system and we're starting to put the financial crisis behind us," he said.