In a closely watched decision this past Wednesday, the Federal Reserve opted for a bigger-than-usual 50-basis point rate cut. While rate cuts of that size are typically reserved for periods of economic crisis, Fed Chair Jerome Powell attempted to thread the needle in his accompanying commentary, positioning the dramatic cut as a recalibration of central bank policy as the group shifts its focus from the fight against inflation toward the recently softening labor market.
Moreover, the central bank's forecasts indicated that further cuts are in the pipeline, with two more traditional cuts of 25 bps each expected at the final two meetings of 2024, and additional easing projected into 2025 and 2026.
After a mixed initial reaction, the decision sent stock markets soaring to new records on Thursday, as investors priced in fresh expectations for a “soft landing.” As the initial euphoria fades, though, this represents an opportune time for investors to consider picking up shares of dividend stocks, small-cap stocks and utility stocks - all of which should benefit from lower interest rates over the long term.
However, sifting through thousands of listed stocks to try and identify the best investments can be a daunting task. To tackle this problem, here are three popular exchange-traded funds (ETFs) that offer broad exposure to each of these themes.
#1. Vanguard Dividend Appreciation ETF
The Vanguard Dividend Appreciation ETF (VIG) was established back in April 2006. It's part of the Vanguard Group, a leading investment management company founded in 1975 by John Bogle.
VIG is designed to track the performance of the Dividend Appreciation Index, which consists of common stocks of companies that have a record of increasing their dividends. The ETF aims to provide investors with a way to invest in companies that have a history of consistent dividend growth. VIG currently has a sizeable AUM of about $86.3 billion.
Up 15.6% on a YTD basis, the VIG ETF offers a forward dividend yield of 1.71%, backed by a 5-year growth rate of over 10%.
VIG's top three holdings are Apple (AAPL) (4.55%), Broadcom (AVGO) (3.87%), and Microsoft (MSFT) (3.84%), with names like JPMorgan Chase (JPM), UnitedHealth (UNH), Exxon Mobil (XOM), and Visa (V) also in the top 10.
The dividend ETF has healthy daily liquidity, averaging over 600,000 shares, and a modest management fee of 0.06%.
#2. iShares Core S&P Small-Cap ETF
Launched in May 2000 by the world's largest asset manager, BlackRock (BLK), the iShares Core S&P Small-Cap ETF (IJR) is one of the largest small-cap ETFs in the world in terms of AUM - which currently stands at a whopping $87 billion.
IJR is designed to track the performance of the S&P SmallCap 600 Index ($IQY), which consists of roughly 600 small-cap stocks selected from the S&P 1500 Index. The ETF aims to provide investors with exposure to the small-cap stock market segment, which can offer potential growth opportunities, but also comes with increased volatility.
Shares of the IJR ETF are up 8.2% on a YTD basis, thanks to an 11% surge over the past three months alone. IJR also offers a dividend yield of 1.23%, paid on a quarterly basis.
The fund has nearly 700 holdings, and its top three are The Ensign Group (ENSG) (0.67%), Fabrinet (FN) (0.65%) and Mueller Industries (MLI) (0.63%).
With average daily volume of more than 3.5 million shares, IJR is extremely liquid. The ETF carries a competitive management fee of 0.06%.
#3. Virtus Reaves Utilities ETF
Founded in 2015 by Virtus Investment Partners, an investment management firm, the Virtus Reaves Utilities ETF (UTES) is designed to provide investors with exposure to the utilities sector of the U.S. equity market. The actively managed ETF seeks to achieve its investment objectives by investing primarily in common stocks of companies engaged in the utility industry. This includes companies involved in the generation, transmission, and distribution of electricity, gas, and water.
The fund's AUM is currently a modest $169.9 million, with average daily volume of around 41,000 shares reflecting its relatively under-the-radar status. The ETF charges a management fee of 0.49%, which is reasonable for an actively managed fund.
In 2024 so far, shares of the UTES ETF are outperforming considerably, up 37.5%.
The fund's top holdings include NextEra Energy (NEE) (17.10%), Constellation Energy (CEG) (10.87%), Vistra Corp. (VST) (9.92%), Talen Energy (TLN) (8.80%), and PG&E Corp. (PCG) (5.87%).
The UTES ETF also offers a dividend yield of 1.87%, backed by a 5-year growth rate of 8.50%.
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On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
