Investors eye Fed rate cuts in 2024

U.S. large-cap equity ETFs continued to dominate last week in terms of inflows; cyclical sectors saw huge decline in interest … bonds were out of favor, but investors still put money into investment grade and government bond funds
⁦@DataArbor⁩ pic.twitter.com/zxXHHlNm1H

— Liz Ann Sonders (@LizAnnSonders) July 3, 2024

The Federal Reserve’s anticipated interest rate cuts in 2024 have investors seeking opportunities to position their portfolios for maximum benefit. As the first rate cut of the year approaches, bond options and Real Estate Investment Trusts (REITs) are emerging as significant investment opportunities. Jimmy Lee, Founder and CEO of The Wealth Consulting Group, expects diverse investment flows as rates decrease.

Rate cuts are coming eventually. September? December? Early 2025? Don’t sweat the timing. These dozen stocks should benefit from the inevitable Fed easing. My story for @barronsonline. https://t.co/PHOfJpqO9u

— Paul R. La Monica (@LaMonicaBuzz) July 3, 2024

“Certain asset classes, such as public real estate, which has been pummeled, or longer-duration bonds tied to a ten-year treasury, have a chance to snap back quickly,” Lee explains. BondBloxx provides several fixed-income options for investors looking to get ahead. Exposure to REITs can be partially achieved through relevant bond funds. While high-yield bonds, like those in XHYF, could make REIT investments riskier, portfolio diversification acts as a countermeasure. XHYF’s portfolio has stronger exposure to the financial services sector, mitigating potential REIT underperformance.

US budget deficits are just crazy! Will the US default? Likely not, or at least not anytime soon. Yet investors should avoid bonds.
In my latest blog, I explain how the trinity of sound investing (#return, #risk, and #diversification) tells you to stay away from bonds and look… pic.twitter.com/YyXPKaZCbV

— jeroen blokland (@jsblokland) July 4, 2024

Additionally, most bonds in the fund have a credit rating between BB1 and BB3, presenting less default risk than other high-yield options. For an investment-grade option, investors might consider long-term U.S. Treasury securities. Funds such as XTEN, which primarily invest in Treasuries with an average duration of about ten years, may be attractive. Long-term bonds offer potential for higher yields over time and significantly mitigate reinvestment risk. As investors anticipate the Federal Reserve’s rate cut, they should consider diversifying their portfolios with bond options and REIT exposure to capitalize on the upcoming market changes. In general, falling rates tend to be good for assets that generate cash flow, especially if that payout is fixed. Long-term bonds, preferred stocks, dividend stocks, and REITs tend to perform well when rates decline.

Diversifying portfolios for upcoming opportunities

Here are some top ETF candidates based on their holdings, returns, and expense ratios: 1. iShares 20+ Year Treasury Bond ETF (TLT): This fund owns exclusively long-dated Treasurys, with maturities of 20 to 30 years, making it highly responsive to changing rates. 2. Goldman Sachs Access Treasury 0-1 Year ETF (GBIL): This fund holds U.S. Treasurys with maturities of less than a year, offering high yields from current interest rates. 3. iShares 10+ Year Investment Grade Corporate Bond ETF (IGLB): This fund owns long-term corporate bonds and generally offers higher yields than Treasury bonds due to investment-grade holdings. 4. Global X U.S. Preferred ETF (PFFD): This ETF invests primarily in preferred stocks of banks and utilities with a healthy yield. 5. Virtus Infracap REIT Preferred ETF (PFFR): This fund offers a higher dividend than other preferred stock funds due to its focus on REIT securities. 6. Vanguard High Dividend Yield ETF (VYM): This fund owns high-yielding common stocks from proven dividend payers. 7. Vanguard Real Estate ETF (VNQ): This Vanguard fund owns REITs, companies that pay strong dividends and benefit from lower financing costs in a declining rate environment. ETFs can be a great way to invest in trends, such as lower interest rates, allowing investors to quickly diversify without analyzing every holding. However, conducting independent research into investment strategies is essential, as past performance is not indicative of future results.