Rate cuts are coming – the question is, when? Many market watchers are expecting at least one cut this Fall as the U.S. inflation rate has cooled. Investors have been excitedly awaiting rate cuts for months and months, but with them finally arriving, what strategies might be best positioned to benefit? When it comes to ETFs for rate cuts, these three strategies might stand out.
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The three ETFs positioned for rate cuts all focus on small and mid-cap equities. Smaller firms often have to borrow more than their larger rivals, especially in areas like tech or biotech. The rapid pace of rate hikes to address inflation took their toll, but with rate cuts on the horizon, that could flip. Rate cuts could position those firms to leap forward. That’s where active small and mid-cap ETFs come in.
The Avantis U.S. Small Cap Equity ETF (AVSC )
AVSC stands out in the pool of ETFs for rate cuts. Actively investing for a 25 basis point (bps) fee, it looks for small cap firms that are highly profitable with a value lean. The strategy looks to screen for fundamental factors and market data like cash flow and incurred expenses. AVSC has outperformed its benchmark over one year, returning 10.9% in that time per Avantis Investors data.
The Avantis U.S. Mid Cap Equity ETF (AVMC )
AVMC launched this past November and invests actively in mid-cap firms across several U.S. sectors. It also uses fundamental screens and looks for firms with high profitability and value attributes. For an 18 bps fee, AVMC has returned 6% YTD, outperforming its benchmark’s 5% YTD return.
The Avantis U.S. Mid Cap Value ETF (AVMV )
AVMV launched alongside AVMC and presents a slightly more value-oriented version of AVMC’s mid cap approach. Leaning further into value could help AVMV stand out among other ETFs for rate cuts. The firms it targets, already undervalued by the market but meeting certain fundamental standards, could benefit significant from rate cuts. AVMV charges 20 bps and has returned 7.5% YTD compared to 4.5% for its benchmark.
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