The discourse surrounding rate cuts has come back around once again. Where the potential for rate cuts dropped as 2023 became 2024, the rate cut signals from the Fed are sparking once again. As jobs numbers come in cooler and the unemployment rate ticks up, investors may want to take a closer look at active ETFs as a potential option to respond.
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Per recent media reports, the Fed may be looking at a rate cut in September following slow jobs numbers. The Labor Department reported an unremarkable 206,000 jobs for June, pushing the unemployment rate up to 4.1%. That news, combined with recently positive signs from inflation data, could point to a decrease in interest rates by the Fed. A rate cut would likely boost the economy overall, but for investors, active ETFs could provide an important option to identify some of the firms best positioned to benefit.
Discourse on Rate Cuts Continues
Active ETFs combine tax advantages and adaptability. Where index funds make changes much less frequently, active strategies, informed often by fundamental research, can over- or underweight stocks as needed. A rate cut could, for example, benefit smaller growth names that borrow quite a bit to start out, lowering debt costs.
That could prove especially beneficial amid the concentration risk looming over many portfolios. Just 10 or so mega-cap firms have contributed outsized returns to the market. Active ETFs can provide significant adaptability to address such a scenario.
For example, the T. Rowe Price Small-Mid Cap ETF (TMSL), which charges 55 basis points, could present an option. The strategy, which launched just over a year ago, looks for small and midsize companies that meet its standards.
Rate cuts remain one of those major storylines for investors to watch over the last several months. For those looking at their options to adjust, active strategies provide a potent option.
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