While many investors have been sitting comfortably in large-cap tech equities, potential rate cuts may open up new flows, such as bond options.
Investors should be positioning their funds to best benefit from the Federal Reserve’s first rate cut for the year. Once that cut happens, expect investors to pour more assets into the market. The question is: where should investors position their portfolios ahead of a potential rate cut?
Though some may stick to large-cap equities, more opportunities may be opening in bond investing. Jimmy Lee, Founder and CEO of The Wealth Consulting Group, recently told CNBC that he expects investment flows to broaden as rates begin to trim down.
“Certain asset classes, such as public real estate, which has been pummeled, or longer duration-bonds that are tied to a ten-year treasury, I think have a chance to really snap back. And I think that might happen very quickly”, Lee adds.
Diversified REIT Exposure
For investors seeking to get ahead of broadening fund flows, BondBloxx offers a number of fixed income options. For example, the BondBloxx USD High Yield Bond Financial & REIT Sector ETF (XHYF ) can provide partial exposure to the Real Estate Investment Trust (REIT) sector.
While XHYF’s high yield bonds could make a REIT play a little riskier, the fund’s portfolio diversification serves as a countermeasure. XHYF has somewhat stronger exposure to the financial services sector, mitigating volatility from any potential REIT underperformance. Additionally, the majority of bonds within the fund have a credit rating between BB1-BB3, presenting less default risk than other high-yield options.
Long-Term Treasuries
For an investment-grade option, investors may consider the BondBloxx Bloomberg Ten Year Target Duration US Treasury ETF (XTEN ). The fund primarily invests in U.S. Treasury securities with an average duration of about ten years.
With the ten-year treasury yield jumping earlier this week, now may be the time to give XTEN a shot. Long-term bonds also offer great potential for higher yields over time while drastically mitigating reinvestment risk.
For more news, information, and analysis, visit the Institutional Income Strategies Channel.
