Getting ready for rate cuts? Cuts may be priced in to a notable degree, but with the Fed deciding this week, there remains potential for 50 basis points or more coming off the Fed’s main rate. That could create a wide group of winners, but losers, as well.
Investors have had plenty of time to prepare for cuts given how long they’ve loomed over markets. But where to go now that cuts appear imminent? One key hidden benefit of active investing could offer a helpful insight therein.
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What active investing can offer investors eyeing rate cuts may just be the simple benefit of flexibility. The right active ETF can provide the flexibility to adjust if an overweight in one area suddenly looks less rosy after cuts. On the other hand, active investing can help a strategy adjust an underweight if a given sector or specific firm stands out after cuts.
The Key to Active Investing: Flexibility
Even in a bottom-up, pure stock selection strategy, active flexibility can matter quite a bit. Consider how rate cuts may impact a firm’s outlook. Leaders in a given sector, like tech, not seeing as big of a bump as expected, could cast doubt over its prospects.
If a surprise sector, like energy, rides cuts to an election-related bounce, that could also offer an opportunity for active. It’s that kind of adaptability that helps active strategies outdo passive funds from the first steps of constructing a portfolio to its day-to-day operations.
The T. Rowe Price Capital Appreciation Equity ETF (TCAF) presents one example. The fund charges a 31 bp fee for its approach — relatively low among active funds. The strategy, managed by David Giroux, uses fundamental analysis to evaluate stocks. For those readying for rate cuts, the flexibility in active management funds like TCAF could stand out.
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