Rate cuts may finally be here, with a matter of days between now and potentially as much as a 50 basis point (bps) cut. Markets have likely priced in a cut for months now, but the benefit of a cut may not be so predictable. Certain areas may be more likely to benefit from a cut and its implications than others, certainly, but picking which areas could be an important choice. Identifying the right option for cuts, then, stands out as one of the big questions this week.
See more: Looking to Pair Your S&P 500 Exposure With a Dividend ETF? Here’s Your Chance
Investors have plenty of ways to add exposure to their portfolios with ETFs. With their tax efficiency, tradability, and transparency, they provide short and long term options for overall portfolios. That flexibility helps the funds craft intriguing thematic approaches.
One ETF, in particular, could offer a potent tool for investors looking to play an exciting but uncertain rate cut this week. The equal-weight ETF EQL balances weights to each sector. The ALPS Equal Sector Weight ETF (EQL) uses a variety of other ETFs to do so. That includes areas from consumer discretionary to communication services and energy to real estate.
Rate Cuts and EQL
It’s that approach that could set EQL apart for rate cuts. Cuts could benefit areas like technology, sure, but certain health care segments could also benefit. The same can be said for real estate or materials. Together, EQL presents a balanced approach that, while perhaps limited in upside, offers a strong amount of diversification within the ETF wrapper.
“Most folks are getting exposure to the equity markets using the market-cap-weighted S&P 500,” said VettaFi head of research Todd Rosenbluth.
“We think this ETF vehicle can complement that existing strategy,” he added. “So you would reduce your sector dependence on technology, reduce your underexposure to some of the smaller sectors, like real estate and utilities and energy, and being able to diversify away from the cap-weighted approach.
The strategy charges a 25 bps fee for its approach. EQL has returned 15.2% over the last one-year period on an annualized NAV basis. With rate cuts an exciting but hard-to-predict phenomenon, EQL may stand out as a strong option to watch.
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