Entering 2024, market narratives about several rate cuts spread like wildfire. The stock market started to bake in multiple cuts, with many getting client cash back into play. Of course, despite the rate cut hype, cuts haven’t arrived. Now, in a significant reversal, discussion has turned to whether the Fed will cut at all this year. While disappointing to some, it gives careful investors more time to consider where to move cash assets.
See more: Positioning Portfolios for Rate Cut Uncertainty
Cash reached nearly 20% of total net assets over the last 12 months or so. The relative ease of accessing money market yields played a big role, but money market funds can only go so far. With the Fed continuing to slow roll an unwinding of rates – and cuts likely to come slower than the hikes did – investors still have time to add some intriguing fixed income and equities allocations with their cash assets.
In equities, rate cuts could provide a meaningful boost for all kinds of firms, but debt-reliant sectors may benefit particularly. Smaller firms that lean on heavy borrowing in areas like tech or biotech could benefit. At the same time, steady, value-type opportunities could push forward with cheaper debt on the back of healthy balance sheets and strong fundamentals.
For fixed income, flexible short and long-term duration strategies can appeal. Whether looking to get continued yield in the near term as the Fed holds off on cuts and keeps rates high, or looking to lock in rates, flexibility can help get the most out of a cash-to-bonds move.
That’s where active investing comes in. Active ETFs can provide adaptable approaches to key allocations. For example, for moving cash into equities, a small-cap active ETF like the T. Rowe Price Small-Mid Cap ETF (TMSL ), may appeal. In fixed income, the T. Rowe Price Total Return ETF (TOTR ) takes a broad view looking for the best opportunities across fixed income thanks to its active remit.
Taken together, active investing provides a strong option for cash assets right now. So long as the Fed hasn’t cut rates, there’s still time to prepare.
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