Despite 2023 producing some of the fastest rate hikes in decades, market participants are now actively discussing rate “cuts” in 2024. While the Fed continues to signal that they intend to hold firm until inflation comes down even more, potential rate cuts remain a significant possibility. As such, investors looking at their portfolios may want to consider a few strategies that could benefit from rate cuts.
One firm specifically that offers a few intriguing options here is Fidelity Investments. The firm’s ETF suite includes both active and passive strategies, with multiple new ETFs this year alone. Rate cuts may benefit whole swathes of the equity market, of course. However, such rate cuts may prove even more beneficial to growth stocks, small and mid-caps, and clean energy.
FSMD and FRNW -- ETFs to Watch for Potential Rate Cuts?
Rate cuts could also be set to support a strategy like the Fidelity Small-Mid Multifactor ETF (FSMD ). FSMD tracks the Fidelity Small-Mid Multifactor Index. It looks for high quality firms across the small and mid cap spectrum that exhibit positive momentum and lower volatility at attractive valuations.
Small and mid-cap stocks could benefit particularly well from rate cuts. That’s due to the segment tending to be more cyclical and thus more sensitive to movements in rates, than large cap stocks. That could support FSMD even further, with the strategy performing pretty well over YTD, returning 15.5% for a 15 bp fee.
The Fidelity Clean Energy ETF (FRNW ) merits a look as well. The strategy will hit its three-year mark next Fall. FRNW tracks a market cap-weighted index of global clean energy firms.
Though renewables have had a tough time this year due largely to rate hikes stymying significant public investment in clean energy, rate cuts would, by that token, potentially be a big boost. FRNW has already seen its performance rise through November and December, possibly anticipating rate cuts.
This ETF duo presents a pair of options to play potential rate cuts next year or beyond. Should the Fed be satisfied with inflation cooling, even a “higher for longer” mentality could yet produce cuts.
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