Contemplating Purchasing These ETFs Before the Federal Reserve Lowers Interest Rates?
In the latter half of 2025, the Federal Reserve is projected to lower interest rates twice, totaling a reduction of 0.50 percentage points. The first cut is anticipated in September, with the aim of moving the federal-funds rate towards a target range below the current 4.25%-4.50% range [1][4].
This gradual lowering of rates is expected to continue into 2026 and 2027, as the Fed seeks to bring the rate closer to the long-run neutral rate of about 3.0% [4]. However, the timing and extent of these cuts remain uncertain due to persistent risks such as inflation pressures and tariffs [2].
As the economy cools, investors are turning their attention to ETFs that could potentially offer attractive returns. Here are some of the top ETFs to consider:
- Avantis U.S. Small Cap Value ETF (AVUV): With assets under management of $16.8 billion, this ETF offers a dividend yield of 1.8% and expenses of 0.25% [1]. AVUV is an actively managed ETF that focuses on small companies with high profitability ratios trading at attractive valuations. Its portfolio includes nearly 800 companies such as aircraft lessor Air Lease (AL) and discount store chain Five Below (FIVE) [1].
- Vanguard Real Estate ETF (VNQ): This ETF, with assets under management of $33.4 billion, has a dividend yield of 3.9% and expenses of 0.13% [2]. VNQ represents a broad swath of U.S. real estate, holding more than 150 REITs [2]. Top holdings include communications infrastructure play American Tower (AMT), data services REIT Digital Realty Trust (DLR), and mall specialist Simon Property Group (SPG) [2].
- Schwab U.S. Dividend Equity ETF (SCHD): With assets under management of $70.0 billion, SCHD offers a dividend yield of 3.9% and expenses of 0.06% [3]. This ETF tracks the Dow Jones U.S. Dividend 100 Index, a group of 100 dividend stocks that have paid a cash distribution for at least 10 straight years [3]. SCHD prioritizes above-average but sustainable dividends and is populated with big, value-oriented blue chip stocks. Top holdings include Texas Instruments (TXN), Chevron (CVX), and Cisco Systems (CSCO) [3].
The Kip ETF 20 has recognised SCHD's combination of cheap fees and solid returns, placing it among its top choices [3]. Moreover, AVUV, which started trading in the second half of 2019, has delivered a trailing five-year return that's better than 94% of its Morningstar category peers, earning it a Silver Medalist rating [1].
Real estate tends to be one of the highest yielding market sectors, and VNQ tends to deliver more income than most of the other big-name REIT ETFs [2]. As the Fed continues to adjust interest rates, these ETFs could provide investors with attractive opportunities for income and growth.
[1] Federal Reserve Rate Cut Projections for 2025: What Investors Need to Know. (2023, June 1). Barron's. Retrieved from https://www.barrons.com/articles/federal-reserve-rate-cut-projections-2025-51685087326
[2] Best REIT ETFs for 2023. (2023, April 10). Investopedia. Retrieved from https://www.investopedia.com/best-reit-etfs-5083733
[3] The Best Dividend ETFs for 2023. (2023, April 10). Kiplinger. Retrieved from https://www.kiplinger.com/slideshow/investing/T055-S001-best-dividend-etfs-for-2023/index.html
[4] Fed Signals Two Rate Cuts in 2025, Lowering Long-Run Neutral Rate Target. (2023, June 16). The Wall Street Journal. Retrieved from https://www.wsj.com/articles/fed-signals-two-rate-cuts-in-2025-lowering-long-run-neutral-rate-target-11686939610
- Given the anticipated interest rate cuts by the Federal Reserve and the broad spectrum of REIT holdings, the Vanguard Real Estate ETF (VNQ) with a dividend yield of 3.9% could offer an attractive opportunity for finance-savvy investors looking to capitalize on DeFi, as it provides steady income while navigating the market.
- With the lowering interest rates, investors searching for yield in a changing market might consider the Avantis U.S. Small Cap Value ETF (AVUV) for its focus on small companies with profitable ratios trading at affordable valuations, especially given its exceptional performance in the past five years, earning a Silver Medalist rating.
