Following a closely monitored decision last Wednesday, the Federal Reserve surprised the market with a larger-than-usual 50-basis point rate cut. Such rate cuts are typically reserved for times of economic turmoil, yet Fed Chair Jerome Powell defended the move as a strategic shift to address the softening labor market. This decision marks a departure from the central bank’s inflation-fighting stance.
Projections by the Fed indicate a series of forthcoming cuts, with two 25 bps cuts expected at the final two meetings of 2024, and further easing anticipated into 2025 and 2026.
While the stock market initially reacted with mixed sentiments, a surge to record highs on Thursday reflected fresh hopes for a “soft landing.” As investors navigate this landscape post-euphoria, the time is ripe to explore opportunities in dividend stocks, small-cap stocks, and utility stocks, all poised to benefit from the lower interest rates in the long run.
Investing in Vanguard Dividend Appreciation ETF (VIG)
The Vanguard Dividend Appreciation ETF (VIG) was launched in April 2006. It aims to track the performance of the Dividend Appreciation Index, comprising stocks of companies with a history of increasing dividends. With an impressive AUM of around $86.3 billion, VIG has shown a YTD growth of 15.6%. The ETF offers a 1.71% forward dividend yield, supported by a robust 5-year growth rate exceeding 10%.
Top holdings of VIG include Apple (AAPL), Broadcom (AVGO), and Microsoft (MSFT), demonstrating a focus on stable companies. The ETF boasts healthy daily liquidity and a modest management fee of 0.06%.
Exploring iShares Core S&P Small-Cap ETF (IJR)
The iShares Core S&P Small-Cap ETF (IJR), launched in May 2000 by BlackRock, is one of the largest small-cap ETFs globally, with an AUM of $87 billion. Tracking the S&P SmallCap 600 Index, IJR provides exposure to approximately 600 small-cap stocks. YTD, the ETF has shown an 8.2% increase, with a 1.23% dividend yield. This ETF offers potential growth opportunities but comes with heightened volatility.
With nearly 700 holdings, IJR’s top three holdings are The Ensign Group (ENSG), Fabrinet (FN), and Mueller Industries (MLI). The ETF maintains high liquidity, with over 3.5 million shares traded daily, and charges a competitive management fee of 0.06%.
Diving into Virtus Reaves Utilities ETF (UTES)
The Virtus Reaves Utilities ETF (UTES), established in 2015, seeks to expose investors to the utilities sector of the U.S. equity market. Managed by Virtus Investment Partners, the fund focuses on companies engaged in electricity, gas, and water generation, transmission, and distribution. UTES currently manages an AUM of $169.9 million and shows robust performance, with YTD returns of 37.5% in 2024.
Top holdings of UTES include NextEra Energy (NEE), Constellation Energy (CEG), Vistra Corp. (VST), Talen Energy (TLN), and PG&E Corp. (PCG). The ETF offers a dividend yield of 1.87%, supported by a 5-year growth rate of 8.50%.