Brian Armor: It seems like an interest rate reduction might be coming soon. Preston Caldwell, who is a senior US economist at Morningstar, has forecasted that the first cut, likely around 25 basis points, could happen during the Federal Reserve meeting on September 17, 2025.
Futures for Fed funds also support this idea. According to CME’s 30-day Fed fund futures, there’s an 85% likelihood of rate cuts occurring in September. The market seems to be leaning toward a total reduction of 50 basis points by year’s end. This reduction is mostly already anticipated in market pricing, so don’t expect major fluctuations if these predictions hold true.
While interest rate forecasts can be insightful, they are not set in stone. The Federal Reserve is primarily focused on inflation and employment. So, their expected interest rate trajectory could shift if new economic data emerges. Currently, projections suggest a rate cut ranging between 25 to 75 basis points by the close of the year. But within that range, there’s a fair bit of uncertainty. As we look ahead to 2026, the picture might become clearer, although current prices and estimates indicate stable rate cuts for the next several years.
Investors might want to understand this anticipated path, but it’s crucial to recognize that actual outcomes could vary widely from what’s already considered. With that in mind, I plan to invest in three big ETFs before the Fed decides to lower interest rates, which allows for some flexibility without going all in on a singular prediction.
Three big ETFs to buy before the Fed cuts interest rates
- iShares Total Return Active ETF BRTR
- Avantis US Small Cap Value ETF Avuv
- iShares Advantage Large Cap Income ETF Bali
The first ETF I suggest is a solid option for active bond management—iShares Total Return Active ETF, ticker BRTR. This fund is overseen by Chief Investment Officer Rick Rieder, who has put together a strong team. They leverage BlackRock’s extensive resources to carry out detailed research and identify noticeable trends. Essentially, this allows investors to step back from closely monitoring Fed meetings, letting skilled managers handle their bond investments.
BRTR employs a diverse set of strategies to meet its goals. Starting with an investment-grade portfolio, they opportunistically trade into riskier, higher-yielding areas, including emerging market debt. By combining bottom-up analysis with top-down macro perspectives, this fund seeks to find relative value while quickly adjusting risk exposure when market conditions aren’t favorable. Overall, the strategy carefully utilizes a variety of complex tools to exploit different markets and effectively manage risks, boasting a strong track record since leadership changes occurred in 2010.
Next up is the silver-rated Avantis US Small Cap Value ETF, ticker Avuv. This ETF is particularly appealing for investors who don’t require immediate income. Small-cap stocks are notably affected by borrowing costs and could experience a rebound once prices drop.
The fund aims to identify both affordable and profitable stocks within the small-cap sector, capitalizing on two attractive factors that historically correlate with market returns. These factors tend to perform well at different times, especially in the small-cap space. By balancing these elements, the fund aims to maintain competitiveness across varied market conditions.
Investors can cast a wide net with this ETF while keeping prices low, targeting specific segments that respond well to market changes.
High income doesn’t solely rely on bonds. Those looking for solid income along with stock market returns might consider the iShares Advantage Large Cap Income ETF, ticker Bali. While this option might not seem like a direct move ahead of rate cuts, it actually makes sense for a couple of reasons. For one, lower interest rates typically improve business profitability by reducing borrowing costs and boosting consumer spending. Furthermore, future bond yields are likely to dip as rates are lowered.
The iShares team aims for yields between 7.0% and 7.5%, with a beta of 0.9 relative to the S&P 500. They achieve this by integrating stocks, options, and futures into one portfolio. The stock segment focuses on 100-250 income-generating stocks, utilizing quantitative measures and strict market constraints. Options generate revenue by selling call options, and future sleeves hedge these options with S&P 500 futures.
This strategy is particularly beneficial for those in need of income, although investors should be prepared for higher tax implications to reach that 7.0% to 7.5% yield each year. Still, using Bali could be a way to make up for lost bond income.
Many investors are looking for the safety that gold ETFs can provide. Is this strategy working? More details about Brian Armor can be found.
