The U.S. Federal Reserve today implemented an interest rate cut of 25 basis points. The question remains: Just how aggressive will they be the rest of the year and beyond? That may cause anxiety for fixed income investors who have long been accustomed to higher yields in an environment of persistent, sticky inflation.
“A majority of the FOMC is now targeting two further cuts this year, indicating that the doves on the committee are now in the driver’s seat,” said Simon Dangoor, head of fixed income macro strategies at Goldman Sachs Asset Management. “We think it would take a significant upside surprise in inflation or labor market rebound to take the Fed off its current easing trajectory.”
One of the best ways to ease anxiety in a rate-cutting environment is to seek ETFs that focus on income diversification. However, not just any ETF will do. More specifically, look to active ETFs.
Getting Actively Involved
The active strategy allows for dynamic adjustment of holdings to suit current market conditions. It does so irrespective of what the Fed does with interest rates. Active ETFs tap into the experience and expertise of portfolio managers. Those managers can seek diversified income opportunities to maximize yield, as well as return potential, across a variety of sectors and geographies. Additionally, the fund’s managers can add to holdings that are showing upside. On the other hand, they can also reduce holdings in order to minimize the downside.
