As speculation swirls around potential interest rate cuts, turning your attention towards fixed income ETFs could be a savvy move.
While diversifying into high-risk assets has its allure, the aftermath of interest rate cuts is unpredictable. These cuts can stem from various economic scenarios, not always painting a rosy picture for investors.
In times of economic distress prompting the Federal Reserve to slash interest rates, fixed income investments like bonds and bond-like equities might emerge as top performers. Let’s delve into three standout choices for investors seeking stability and passive income amidst potential turbulent times.
Charles Schwab U.S. Dividend Equity ETF (SCHD)
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The Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) stands out as a top contender for those seeking diversified exposure to dividend-paying stocks.
Boasting a 3.5% yield, this fund holds high-quality dividend payers. These diversified index funds offer stability by spreading risks across various sectors, potentially yielding long-term gains. SCHD’s portfolio includes prominent companies spanning different industries, signaling solid potential for capital growth.
In its journey since 2011, the SCHD ETF has sought to mimic the Dow Jones U.S. Dividend 100 Index. During this period, the fund has delivered an impressive 357% total return, with dividends growing by an average of 13% annually. Despite a modest 3.8% dividend growth during its lowest year, this ETF has sustained an almost 12% average annual gain over 13 years.
With assets totaling $54.2 billion and a mere 0.06% expense ratio, SCHD proves itself as a reliable performer. It’s a choice well worth considering for investors eyeing bond-like exposure within the equity markets.
Vanguard Utilities Index Fund ETF (VPU)
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We all rely on heating our homes and illuminating our spaces—a universal truth. This reality provides regulated utilities the ability to consistently raise prices, generating cash flows akin (in theory) to bonds as they reinvest back into the grid.
The Vanguard Utilities Index Fund ETF (NYSEARCA:VPU) shines among top ETFs in this domain, flaunting close to $5 billion in assets. Within the utilities sector, this figure represents a significant stake, making it my favored route for engaging with utilities.
Thanks to its diversification across numerous facets and a minimal 0.1% expense ratio, this fund offers investors a modest 3.4% dividend yield, coupled with substantial upside potential for capital growth. It may come as a surprise, but utility stocks have nearly performed as well as the entire tech sector in the past two decades—a testament to the reliable nature of these cash-generating utilities.
For individuals seeking exposure to this sphere, the VPU ETF emerges as the premium vehicle to navigate the utilities landscape.
Total Bond Market ETF Vanguard (BND)
