The Federal Reserve is poised to lower interest rates this month. Some market observers say it’s possible the central bank will pare borrowing costs by as much as 150 basis points into early 2025. So it’s not surprising many investors are focusing on stocks and sectors that are positively tethered to lower rates.
That conversation often revolves around capital-intensive groups such as real estate and utilities as well as growth sectors like tech. Historically, lower rates have benefited those sectors. But investors should remain flexible against the backdrop of declining borrowing costs. The VanEck Morningstar Wide Moat ETF (MOAT ) is an example of an fund that can help on that front.
MOAT is sector-agnostic. Actually, it currently features no exposure to the sectors that are usually viewed as the most rate-sensitive. But that doesn’t diminish the ETF’s appeal as a rate-cut play. That’s because some experts believe the upcoming round(s) of monetary easing could have broad implications for domestic stocks. If that proves accurate, MOAT could benefit.
MOAT Has Rate Cut Leverage
MOAT currently has no real estate or utilities exposure. But it allocates nearly 36% of its portfolio to the healthcare and consumer staples sectors. Those groups have above-average dividend yields. And that could become more enticing as Treasury yields decline. That’s one factor indicating that if a rate cut rally is in fact broad, MOAT could benefit.
“After a historic period of aggressive interest rate hikes that began in March 2022 to curb pandemic-driven inflation, the Fed is expected to start cutting rates, with one reduction anticipated this month and four more expected in 2025,” noted deVere Group CEO Nigel Green. “For investors, this potential rate-cutting cycle is expected to signal the beginning of a new market dynamic—one that offers opportunities for growth and expansion.”
In addition to MOAT’s exposure to the aforementioned defensive sectors, the ETF’s combined weight of more than 40% to industrial and technology stocks could be in the spotlight when rates decline. That’s because those sectors can fund expansion at lower costs. Additionally, both are homes to myriad exporters that could see positive effects from a weakened U.S. dollar.
“Historically, rate cuts have been a powerful catalyst for economic growth, fueling expansion across key sectors such as tech, manufacturing, and real estate,” added Green. “In this environment, businesses often find themselves in a better position to expand, hire more workers, and generate profits, all of which can lead to rising stock prices and a bullish market.”
For more news, information, and analysis, visit the Beyond Basic Beta Channel.
